Inadequate tests of the rationality of expectations

Roy H. Webb

No 84-07, Working Paper from Federal Reserve Bank of Richmond

Abstract: In several recent articles, authors have regressed actual values of macroeconomic aggregates on predicted values and claimed that they were testing the rationality of expectations. This paper interprets those regressions as testing a joint hypothesis of imperfect information and rational expectations. An empirical method is proposed to separate the components of the joint hypothesis. Predictions from two major forecasting services are examined, and results are found that are consistent with rational expectations but inconsistent with the joint hypothesis. It is therefore argued that many purported tests of rational expectations are inadequate.

Keywords: Rational; expectations; (Economic; theory) (search for similar items in EconPapers)
Date: 1984
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.richmondfed.org/publications/research/working_papers/1984/wp_84-7.cfm (text/html)
https://www.richmondfed.org/-/media/RichmondFedOrg ... /1984/pdf/wp84-7.pdf (application/pdf)

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:fip:fedrwp:84-07

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Working Paper from Federal Reserve Bank of Richmond Contact information at EDIRC.
Bibliographic data for series maintained by Christian Pascasio ().