The Permanent-Transitory Confusion: Implications for Tests of Market Efficiency and for Expected Inflation During Turbulent and Tranquil Times

Alex Cukierman, Thomas Lustenberger and Allan Meltzer

A chapter in Expectations, 2020, pp 215-238 from Springer

Abstract: Abstract Even when all past and present information is known, individuals usually remain uncertain about the permanence of observed variables. After reviewing the history and role of adaptive expectations and its statistical foundations in modeling this permanent-transitory confusion, the paper investigates the consequences of this confusion for tests of market efficiency in the treasury bill and foreign exchange markets. A central result is that the detection of serial correlation in efficiency tests based on finite samples does not necessarily imply that markets are inefficient. The second part of the paper utilizes data on Israeli inflation expectations from the capital market to estimate the implicit speed of learning about changes in inflation and to examine the performance of adaptive expectations in tracking the evolution of those expectations during the 1985 shock stabilization as well as during the stable inflation targeting period.

Date: 2020
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:spshcp:978-3-030-41357-6_12

Ordering information: This item can be ordered from
http://www.springer.com/9783030413576

DOI: 10.1007/978-3-030-41357-6_12

Access Statistics for this chapter

More chapters in Springer Studies in the History of Economic Thought from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().