Rational expectations and fixed-event forecasts: an application to UK inflation
AbstractIn this paper a version of the rational expectations hypothesis is tested using fixed-event inflation forecasts for the UK. Fixed-event forecasts consist of a panel of forecasts for a set of outturns of a series at varying horizons prior to each outturn. The forecasts are the prediction of fund managers surveyed by Merrill Lynch. Fixed-event forecasts allow tests for whether expectations are unbiased in a similar fashion to the rest of the literature. But they also permit particular tests of forecast efficiency to be conducted - whether the forecasts make best use of available information - that are not possible with rolling event data. The results show evidence of a positive bias in inflation expectations. Evidence for inefficiency is much less clear cut.
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Bibliographic InfoPaper provided by Bank of England in its series Bank of England working papers with number 176.
Date of creation: Feb 2003
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Other versions of this item:
- H. Bakhshi & G. Kapetanios & T. Yates, 2005. "Rational expectations and fixed-event forecasts: An application to UK inflation," Empirical Economics, Springer, vol. 30(3), pages 539-553, October.
- C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
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