Agricultural policy in developing countries is strongly shaped by views about speculation in the foodgrain markets. The central issue is whether speculative expectations are rational. Yet, data availability and the absence of futures markets rarely permits a direct examination of this hypothesis. However, the government intervenes in the Indian wheat market in a manner that allows speculative expectations to be inferred from government purchase of grain. The application of standard tests of rational expectations is complicated by measurement errors. Results show systematic biases in forecasting errors of a form that would not be sustainable in the presence of a futures market. Copyright 2000 by Blackwell Publishing Ltd
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