Inferring Changes in Expectation Behavior over Time: An Application of Nonlinear Time-Varying-Parameters Estimation

Jeffrey Fuhrer

Journal of Business & Economic Statistics, 1992, vol. 10, issue 2, 169-77

Abstract: This article develops a new method for inferring the structure of agents' expectations from macroeconomic time series. Two versions of a somewhat stylized macroeconomic model are examined. Expectations of money growth are a central driving variable, assumed to be formed as a time-varying weighted average of alternative money-growth models. The weights are estimated as time-varying parameters jointly with the structural parameters for the model, using a nonlinear time-varying parameters method developed for the article. The results allow the author to infer how agents may have revised their beliefs about competing money-growth models (including Federal Open Market Committee announcements) over the sample.

Date: 1992
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Persistent link: https://EconPapers.repec.org/RePEc:bes:jnlbes:v:10:y:1992:i:2:p:169-77

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