[PEN-L:4877] Re: inflation expectations by class

[mmeeropo@xxxxxxxxxxxxxxxxxxxxx (Mike Meeropol)]

paul burkett wrote:
>
> I would like to lodge a general info request, concerning whether anyone knows
> of any articles that documents differences in expectations of inflation
> between workers and capitalists (or as a second best, among different income
> groups).  Please respond to me personally, so as not to clutter up the network.
>                                         Thanks a Lot.  Paul Burkett
>                                                        ecburke@indst
>
Paul's question brings to mind another issue I've been wrestling with about
"inflationary expectations" and that relates to the REAL interest rate.  By
convention, an awful lot of time-series' on the real interest rate uses a 12
(or nine) quarter average to estimate the "expected rate of inflation" which
then is subtracted from the actual interest rate in question ---.  I,
myself, have always believed that the EX POST real interest rate (prime or
FFR less the experienced rate of inflation) is more useful because it
explains the actual impact of the real world on borrowers and lenders rather
than the (presumed) reasoning of the borrowers and lenders as they "arrive"
at an acceptable interest rate.  This latter method of formulation has
always bothered me, because those decision-makers that attempt to estimate
the impact of "inflation" on their particular situation will be much
more interested, not in some "general" measure of inflation but on the
specific prices they have to pay for their specific inputs and the specific
price=trajectory they can predict for their specific products.  WHILE
lenders might be interested in some sense in the (general) rate of inflation
--- they are even more interested in the SPREAD.  Thus, I have to confess,
I've always been a bit leery of using the "expectations" or EX ANTE real
interest rate as opposed to the EX POST one.

BTW, I would be interested in any references people have in response to
Paul's query -- In general I think requests for references ought to be sent
to the list because many other people are probably interested in the same
questions that are asked.

I'd be curious as to what people think about the two alternative ways of
measuring the real interest rate ---  (note, of course, the rational
expectations folks would insist that recent experience in NO WAY predicts
the expected price of ANYTHING!)

All the best, Mike

--
Mike Meeropol
Economics Department
Cultures Past and Present Program
Western New England College
Springfield, Massachusetts
"Don't blame us, we voted for George McGovern!"
Unrepentent Leftist!!
mmeeropo@xxxxxxxx
[if at bitnet node:  in%"mmeeropo@xxxxxxxx" but that's fading fast!]