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Information Rigidity and the Expectations Formation Process: A Simple Framework and New Facts

Olivier Coibion and Yuriy Gorodnichenko

No 16537, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We propose a new approach to test of the null of full-information rational expectations which is informative about whether rejections of the null reflect departures from rationality or full-information. This approach can also quantify the economic significance of departures from the null by mapping them into the underlying degree of information rigidity faced by economic agents. Applying this approach to both U.S. and cross-country data of professional forecasters and other economic agents yields pervasive evidence of informational rigidities that can be explained by models of imperfect information. Furthermore, the proposed approach sheds new light on the implications of policies such as inflation-targeting and those leading to the Great Moderation on expectations. Finally, we document evidence of state-dependence in the expectations formation process.

JEL-codes: E2 E3 E4 (search for similar items in EconPapers)
Date: 2010-11
Note: EFG IFM ME
References: Add references at CitEc
Citations: View citations in EconPapers (68)

Published as Olivier Coibion & Yuriy Gorodnichenko, 2015. "Information Rigidity and the Expectations Formation Process: A Simple Framework and New Facts," American Economic Review, American Economic Association, vol. 105(8), pages 2644-78, August.

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Related works:
Journal Article: Information Rigidity and the Expectations Formation Process: A Simple Framework and New Facts (2015) Downloads
Working Paper: Information Rigidity and the Expectations Formation Process: A Simple Framework and New Facts (2012) Downloads
Working Paper: Information Rigidity and the Expectations Formation Process: A Simple Framework and New Facts (2010) Downloads
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