INFERENTIAL EXPECTATIONS

Gordon Menzies and Daniel Zizzo

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: We propose that the formation of beliefs be treated as statistical hypothesis tests, and we label such beliefs inferential expectations. If a belief is overturned through the build-up of evidence, agents are assumed to switch to the rational expectation. Rational expectations are shown to be a special (limiting) case of inferential expectations, with the test size 'a' becoming a metric for rationality. We present the results of an experiment that supports inferential expectations. When inferential expectations are built into a Dornbusch-style model of the exchange rate, regression tests of Uncovered Interest Parity and the rational expectations version of the term structure both display downward bias in the slope coefficient.

JEL-codes: C91 D84 E50 F31 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2005-06
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://cama.crawford.anu.edu.au/sites/default/fil ... nzies_zizzo_2005.pdf (application/pdf)

Related works:
Journal Article: Inferential Expectations (2009)
Working Paper: Inferential Expectations (2005)
Working Paper: Inferential Expectations (2004)
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:een:camaaa:2005-12

Access Statistics for this paper

More papers in CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University Contact information at EDIRC.
Bibliographic data for series maintained by Cama Admin ().