Near-Rational Expectations: How Far are Surveys from Rationality?

Sergey Ivashchenko and Rangan Gupta

No 201655, Working Papers from University of Pretoria, Department of Economics

Abstract: New simple forms of deviation from rational expectations (RE) are suggested: temporary near-rational expectations (TNRE) and persistent near-rational expectations (PNRE). The medium-scale DSGE model was estimated with the RE, the TNRE and the PNRE. It was estimated with and without observations from the survey's expectations. The quality of the out-of-sample forecasts was estimated. It is shown that near-rational concepts produce the same advantages as learning, without its disadvantages (including the absence of ‘learning expectations’ reactions on policy change). The influence of the observed expectations on forecasting quality was analysed.

Keywords: DSGE; out-of-sample forecasts; survey expectations; near-rational expectations (search for similar items in EconPapers)
JEL-codes: E32 E37 E47 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2016-07
New Economics Papers: this item is included in nep-mac
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Related works:
Journal Article: Near-Rational Expectations: How Far are Surveys from Rationality? (2017)
Working Paper: Near-Rational Expectations: How Far are Surveys from Rationality? (2017)
Working Paper: Near-Rational Expectations: How Far Are Surveys from Rationality? (2014)
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