To the extent that participants are responding about the mode of the joint distribution, as opposed to the mode of each marginal distribution, this would not be surprising.45 The striking feature of Slide 10 is the contrast between the steadiness of modal point forecasts and the dramatic changes in density forecasts. Modal forecasts for the policy rate in both year-end 2017 and 2018 barely moved from December to January, and edged slightly down in March. Had we just elicited point forecasts, we would have concluded that survey respondents’ views had not changed very much. In contrast, the pdf-implied mean forecast decreased substantially from December to January, and then increased slightly from January to March. More importantly, density forecasts shifted from being slightly skewed toward higher rates in December to being skewed toward lower rates in January. In fact, density forecasts became bimodal in January, and in March, the “low rate” mode became the dominant one for 2018. I should stress that the change in the density forecasts from December to January occurred following substantial changes in how the survey questions elicited respondents’ probabilityweighted expectations. In December, and in many preceding surveys, both the SPD and SMP asked respondents for the unconditional probabilities that they assigned to various rate outcomes.
In our experimental surveys, we instead administered the follow-up to everyone. We found that if we administered the follow-up question only to those giving responses over 5 percent, then the median long-term expectation would be 4.3 percent instead of 3.7 percent in our test sample. Thus, we have reasons to believe that the 5 percent follow-up question in the Michigan Survey leads to a systematic overestimation of actual average responses. 19  In contrast, for the Survey of Primary Dealers discussed later, we added a question in 2007 that directly elicited uncertainty over CPI inflation from 5 to 10 years ahead. See Potter (2011, 2012). 6  BIS central bankers’ speeches  as food or gasoline.20 In related research, we have shown that respondents tend to express more extreme inflation expectations when they are prompted to think of specific prices in answering the question rather than overall inflation.21 In the SCE, we therefore ask directly for expectations about the rate of inflation or deflation.22 Probabilistic questions on the SCE As I noted earlier, a key feature of our survey is its use of probabilistic questions. Following the current practice in the literature for the elicitation of expectations about continuous variables, we tested questions that elicited density forecasts by asking respondents to assign the percent chance that the value of interest would fall within different pre-specified ranges or “bins.” For instance, for inflation, we ask for the subjective probability distribution over a range of possible future inflation outcomes.