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Identifying the Source of Information Rigidities in the Expectations Formation Process

Mototsugu Shintani and Kozo Ueda
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Mototsugu Shintani: University of Tokyo

No CARF-F-516, CARF F-Series from Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo

Abstract: Coibion and Gorodnichenko (2015) provide a useful framework to test the null hypothesis of full-information rational expectations against two popular classes of information rigidities, sticky information (SI) and noisy information (NI). However, the observational equivalence of SI and NI in average forecast errors gives no power in the test for one against the other. We identify the source of information rigidities by estimating the equations for the average forecast errors and variance of forecasts. The results show the importance of both SI and NI, but favor a type of NI in which agents quickly learn the underlying state.

Pages: 40
Date: 2021-06
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Working Paper: Identifying the source of information rigidities in the expectations formation process (2021) Downloads
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