Are inflation expectations rational?
David Andolfatto (),
Scott Hendry () and
Kevin Moran ()
Journal of Monetary Economics, 2008, vol. 55, issue 2, 406-422
Several recent papers report evidence of an apparent statistical bias in inflation expectations and interpret these findings as overturning the rational expectations hypothesis. In this paper, we investigate the validity of such an interpretation. We present a computational dynamic general equilibrium model capable of generating aggregate behavior similar to the data along several dimensions. By construction, model agents form "rational" expectations. We run a standard regression on equilibrium realizations of inflation and inflation expectations over sample periods corresponding to those tests performed on actual data and find evidence of an apparent bias in inflation expectations. Our experiments suggest that this incorrect inference is largely the product of a small sample problem, exacerbated by short-run learning dynamics in response to infrequent shifts in monetary policy regimes.
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (56) Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
Working Paper: Are Inflation Expectations Rational? (2007)
Working Paper: Are Inflation Expectations Rational? (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:55:y:2008:i:2:p:406-422
Access Statistics for this article
Journal of Monetary Economics is currently edited by R. G. King and C. I. Plosser
More articles in Journal of Monetary Economics from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().