Dynamic Models and Expectations Hypotheses

Kenneth Wallis ()

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: Dynamic models of the relations between economic variables often rest on theories about how unobservable expectations are formed. In this paper the "adaptive expectations" and "rational expectations" hypotheses are compared and contrasted. The main distinctions concern the size of information set on which expectations are based, and the optimality or otherwise of expectations, given that information set. Expectations that are optimal with respect to the given information may be defined as rational. With this definition, some bivariate dynamical rational expectations models are presented, incorporating the approximate time series forecasting rules for either a single forecast or an infinite sum of discounted forecasts. Model identification problems are discussed, and it is shown how they may be resolved by joint estimation of the bivariate process.

Pages: 16 pages
Date: 1981
References: Add references at CitEc
Citations:

Downloads: (external link)
https://warwick.ac.uk/fac/soc/economics/research/w ... 78-1988/twerp187.pdf

Related works:
Working Paper: DYNAMIC MODELS AND EXPECTATIONS HYPOTHESIS (1981)
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:wrk:warwec:187

Access Statistics for this paper

More papers in The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Margaret Nash ().