As I noted earlier, the SCE is based on a representative sample of U.S. household heads, and the data highlight the rich heterogeneity of expectations held by consumers. For example, Slides 6 and 7 show the recent trends in median three-year-ahead inflation expectations overall and sorted by the education level of respondents. Slide 8 shows trends in inflation uncertainty, also by education. As is common in surveys of inflation expectations, more highly educated respondents typically report lower inflation expectations, and express less uncertainty in their density forecasts. We observe similar patterns when the responses are broken out by income, numeracy, or financial literacy. These differences could reflect heterogeneity in information sets, in individual experiences, or in the way people process information about inflation.29 Next, I’ll share two experiments we conducted during the development phase of the SCE in order to analyze the validity and information content of our inflation expectations questions. In the first experiment, which was financially incentivized,30 survey respondents were first asked for their inflation expectations. They were then asked a series of ten questions offering a choice between two investments, one yielding a nominal return that varies with inflation, the other yielding an inflation-protected payoff with increasingly large amounts over the ten questions.
Moreover, better supervisory oversight would also give us the agility to mitigate emerging risks before they materialize. Having said that, it must be acknowledged that we can’t regulate every aspect of the banking system. Ultimately, banks should assume prime responsibility for their actions and behaviors. Being dependent on public confidence, banks can ill afford to operate with weak corporate governance 4  or poor risk culture. This necessitates that banks maintain robust corporate governance standards, duly supported by strong internal controls, and prudent risk management. We are fully cognizant that these regulatory measures are costly for banks; nonetheless, costs of any financial crisis, both in financial and social terms, are far more substantial. Therefore, it is only wise and rational to strengthen the capacity of our banks in benign times. I believe our proactive approach has actually paid off, as banks in our region generally entered the low oil price environment from a position of strength. Yet banks’ resilience is not infinite and may come under severe pressure if necessary economic and structural reforms are dropped - or even delayed. Hence, we should not lose sight of the broader economic context in which our financial systems operate. After all, the banking sector is just a component of the overall economic landscape, though a very crucial one. While ensuring banking stability is critical, it is only a necessary condition for overall economic stability – and not a sufficient one.