Price Determination and Rational Expectations
AbstractA forward looking specification of the error correction model is estimated for Icelandic inflation for the period 1962-93. Our results are consistent with the view that prices are set by rational, forward looking firms, reacting to expected future innovations in production costs. The forward model is statistically well determined, and the rational expectations, cross-equation restrictions are accepted. We find that the model has stable and plausible parameter values with a stable VAR expectations generating process. Non-nested tests indicate that the forward looking specification cannot be rejected against a statistically well determined backward looking specification. Copyright @ 1998 by John Wiley & Sons, Ltd. All rights reserved.
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Bibliographic InfoArticle provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.
Volume (Year): 3 (1998)
Issue (Month): 2 (April)
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Web page: http://www.interscience.wiley.com/jpages/1076-9307/
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- Guðmundur Guðmundsson, 1998. "A model of inflation with variable time lags," Economics wp02, Department of Economics, Central bank of Iceland.
- Luca Fanelli, 2008.
"Testing the New Keynesian Phillips Curve Through Vector Autoregressive Models: Results from the Euro Area,"
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- Luca Fanelli, 2006. "Testing the New Keynesian Phillips Curve through Vector Autoregressive models : Results from the Euro area," Quaderni di Dipartimento 0, Department of Statistics, University of Bologna.
- Fanelli, Luca, 2005. "Testing the New Keynesian Phillips curve through Vector Autoregressive models: Results from the Euro area," MPRA Paper 1617, University Library of Munich, Germany, revised Jan 2007.
- Jósef Sigurdsson & Rannveig Sigurdardottir, 2011. "Evidence of Nominal Wage Rigidity and Wage Setting from Icelandic Microdata," Economics wp55, Department of Economics, Central bank of Iceland.
- Thórarinn G. Pétursson, 2002. "Wage and price formation in a small open Economy: Evidence from Iceland," Economics wp16_thorarinn, Department of Economics, Central bank of Iceland.
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