Empirical test of expectations formation hypotheses: a study beyond individual rationality

Anton Gerunov

Economic Thought journal, 2015, issue 2, 130-152

Abstract: We use survey data on inflation expectations in the EU-27 spanning the period 01.1998-05.2013 to test major expectations formation hypotheses against empirically observed behavior. Econometric modeling reveals that adaptive and rational expectations approaches fail to describe this process completely, whereas the evolutionary heterogeneous expectations approach seems better able to capture observed dynamics. Those results underline the importance of incorporating more behaviorally realistic models of expectations formation for the purposes of economic modeling.

JEL-codes: D84 E31 (search for similar items in EconPapers)
Date: 2015
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