Information Rigidity and the Expectations Formation Process: A Simple Framework and New Facts

Olivier Coibion and Yuriy Gorodnichenko

No 102, Working Papers from Department of Economics, College of William and Mary

Abstract: We propose a new approach to test of the null of full-information rational expectations which is informative about whether rejections of the null reflect departures from rationality or full-information. This approach can also quantify the economic significance of departures from the null by mapping them into the underlying degree of information rigidity faced by economic agents. Applying this approach to both U.S. and cross-country data of professional forecasters and other economic agents yields pervasive evidence of informational rigidities that can be explained by models of imperfect information. Furthermore, the proposed approach sheds new light on the implications of policies such as inflation-targeting and those leading to the Great Moderation on expectations. Finally, we document evidence of state-dependence in the expectations formation process. implications.

Keywords: Expectations; Information Rigidity; Survey Forecasts (search for similar items in EconPapers)
JEL-codes: E3 E4 E5 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2010-11-08
New Economics Papers: this item is included in nep-cba and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (121)

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http://economics.wm.edu/wp/cwm_wp102.pdf (application/pdf)

Related works:
Journal Article: Information Rigidity and the Expectations Formation Process: A Simple Framework and New Facts (2015)
Working Paper: Information Rigidity and the Expectations Formation Process: A Simple Framework and New Facts (2012)
Working Paper: Information Rigidity and the Expectations Formation Process: A Simple Framework and New Facts (2010)
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