Testing the Rational Expectations Hypothesis in Macroeconometric Models
AbstractThe rational expectations hypothesis is tested by nesting equations without rational expectations within those with rational expectations. This reduces to whether certain variables in an equation are statistically significant. The test can be regarded as an alternative/supplement to Hendry's test of the expectations mechanism but does not require a complete specification of the expectations equation. It provides an easy way to examine the validity of the rational expectations hypothesis in a model such as S. G. Hall and S. G. B. Henry's (1988), where the hypothesis is used but not tested. The author also examines the sensitivity of the properties of a macroeconometric model to the rational expectations hypothesis. Copyright 1993 by Royal Economic Society.
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Bibliographic InfoArticle provided by Oxford University Press in its journal Oxford Economic Papers.
Volume (Year): 45 (1993)
Issue (Month): 2 (April)
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