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Comparing behavioural and rational expectations for the US post-war economy

Chunping Liu () and A. Patrick Minford

No E2012/21, Cardiff Economics Working Papers from Cardiff University, Cardiff Business School, Economics Section

Abstract: The banking crisis has caused a resurgence of interest in behavioural models of expectations in macroeconomics. Here we evaluate behavioural and rational expectations econometrically in a New Keynesian framework, using US post-war data and the method of indirect inference. We find that after full re-estimation the model with behavioural expectations is strongly rejected by the data, whereas the standard rational expectations version passes the tests by a substantial margin.

Keywords: behavioural expectation; rational expectation; bank crisis; indirect inference (search for similar items in EconPapers)
Pages: 19 pages
Date: 2012-08
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Related works:
Journal Article: Comparing behavioural and rational expectations for the US post-war economy (2014) Downloads
Working Paper: Comparing Behavioural and Rational Expectations for the US Post-War Economy (2013) Downloads
Working Paper: Comparing behavioural and rational expectations for the US post-war economy (2012) Downloads
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