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Measures of Fit for Rational Expectations Models

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  • Tom Engsted

Abstract

This survey provides a detailed description of some of the recent theoretical and empirical literature on rational expectations econometrics. The survey pays special attention to non–stationarity of the data, and to the various methods for evaluating rational expectations models that have been developed as alternatives to the classical statistical approach of testing overidentifying restrictions. These methods have become very popular and widely used in empirical research. We provide an illustration using Danish stock market data, and we summarize the many results obtained recently using these measures in areas as diverse as stock prices, the term structure of interest rates, exchange rates, consumption and saving, the balance of payments, tax–smoothing, hyperinflation, and linear quadratic adjustment cost models for inventories, labour demand, and money demand.

Suggested Citation

  • Tom Engsted, 2002. "Measures of Fit for Rational Expectations Models," Journal of Economic Surveys, Wiley Blackwell, vol. 16(3), pages 301-355, July.
    • Handle: RePEc:bla:jecsur:v:16:y:2002:i:3:p:301-355
    DOI: 10.1111/1467-6419.00171
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    Cited by:

    1. Guillén, Osmani Teixeira & Hecq, Alain & Issler, João Victor & Saraiva, Diogo, 2015. "Forecasting multivariate time series under present-value model short- and long-run co-movement restrictions," International Journal of Forecasting, Elsevier, vol. 31(3), pages 862-875.
    2. Engsted, Tom, 2003. "Misspecification versus bubbles in hyperinflation data: comment," Journal of International Money and Finance, Elsevier, vol. 22(4), pages 441-451, August.
    3. Belter, Klaus & Engsted, Tom & Tanggaard, Carsten, 2005. "A new daily dividend-adjusted index for the Danish stock market, 1985-2002: construction, statistical properties, and return predictability," Research in International Business and Finance, Elsevier, vol. 19(1), pages 53-70, March.
    4. Wilson Luiz Rotatori & Jan M Podivinsky, 2007. "Dynamic Macroeconometric Modelling: Evidence on the Brazilian Monetary System," EcoMod2007 23900078, EcoMod.
    5. Søren Johansen & Anders Rygh Swensen, 2009. "On a Numerical and Graphical Technique for Evaluating some Models Involving Rational Expectations," Discussion Papers 09-10, University of Copenhagen. Department of Economics.
    6. Søren Johansen & Anders Rygh Swensen, 2003. "More on Testing Exact Rational Expectations in Cointegrated Vector Autoregressive Models: Restricted Drift Terms," Discussion Papers 348, Statistics Norway, Research Department.
    7. Engsted, Tom, 2002. "Measuring noise in the Permanent Income Hypothesis," Journal of Macroeconomics, Elsevier, vol. 24(3), pages 353-370, September.
    8. Tom Engsted, 2009. "Statistical vs. Economic Significance in Economics and Econometrics: Further comments on McCloskey & Ziliak," CREATES Research Papers 2009-17, Department of Economics and Business Economics, Aarhus University.
    9. Tom Engsted & Stig V. Møller, 2010. "An iterated GMM procedure for estimating the Campbell-Cochrane habit formation model, with an application to Danish Stock and bond returns," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 15(3), pages 213-227.
    10. Peter Tillmann, 2009. "The New Keynesian Phillips curve in Europe: does it fit or does it fail?," Empirical Economics, Springer, vol. 37(3), pages 463-473, December.
    11. Johan Adler, 2006. "The Tax‐smoothing Hypothesis: Evidence from Sweden, 1952–1999," Scandinavian Journal of Economics, Wiley Blackwell, vol. 108(1), pages 81-95, March.

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