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Testing the Rational Expectations Hypothesis using Survey Data

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Author Info
Carl S Bonham () (Department of Economics, University of Hawaii at Manoa)
Richard H Cohen

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Abstract

Because of the importance of inflation expectations, Lloyd B. Thomas Jr. (Fall 1999, p. 125-44) reexamines "the evidence on the nature and performance of various measures of expected inflation, with special attention given to the issue of rationality" (p. 126). Thomas tests the unbiasedness hypothesis using the Livingston and Michigan survey forecasts for the 1960 to 1997 time period and is unable to reject the null hypothesis of unbiasedness. Unfortunately, two types of problems due to aggregation plague such tests: private information bias and micro-heterogeneity bias. Therefore, for these survey forecasts, consensus regressions should generally not be used to test rationality; rationality can only be tested at the individual level.

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File URL: http://www.economics.hawaii.edu/research/workingpapers/007.pdf
File Format: application/pdf
File Function: First version, 2000
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Publisher Info
Paper provided by University of Hawaii at Manoa, Department of Economics in its series Working Papers with number 200007.

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Length: 7 pages
Date of creation: 2000
Date of revision:
Handle: RePEc:hai:wpaper:200007

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Batchelor, Roy & Dua, Pami, 1991. "Blue Chip Rationality Tests," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(4), pages 692-705, November. [Downloadable!] (restricted)
  2. Keane, Michael P & Runkle, David E, 1990. "Testing the Rationality of Price Forecasts: New Evidence from Panel Data," American Economic Review, American Economic Association, vol. 80(4), pages 714-35, September. [Downloadable!] (restricted)
  3. Lloyd B. Thomas Jr., 1999. "Survey Measures of Expected U.S. Inflation," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 125-144, Fall. [Downloadable!] (restricted)
  4. Victor Zarnowitz & Phillip Braun, 1994. "Twenty-two Years of the NBER-ASA Quarterly Economic Outlook Surveys: Aspects and Comparisons of Forecasting Performance," NBER Working Papers 3965, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Paul Frijters & John P. Haisken-DeNew & Michael Shields, 2003. "How Well Do Individuals Predict Their Future Life Satisfaction? Rationality and Learning Following a Nationwide Exogenous Shock," CEPR Discussion Papers 468, Centre for Economic Policy Research, Research School of Social Sciences, Australian National University. [Downloadable!]
  2. Gregor W. Smith, 2007. "Pooling Forecasts in Linear Rational Expectations Models," Working Papers 1129, Queen's University, Department of Economics. [Downloadable!]
    Other versions:
  3. Chetan, Dave, 2004. "Are Investment Expectations Rational?," Analytical Studies Branch Research Paper Series 2004208e, Statistics Canada, Analytical Studies Branch. [Downloadable!]
  4. Frijters, Paul & Haisken-DeNew, John P. & Shields, Michael A., 2002. "Individual Rationality and Learning: Welfare Expectations in East Germany Post-Reunification," IZA Discussion Papers 498, Institute for the Study of Labor (IZA). [Downloadable!]
  5. YU, Ge, 2003. "Comparing Expectations and Outcomes: Application to UK Data," MPRA Paper 502, University Library of Munich, Germany, revised 2005. [Downloadable!]
  6. Carl Bonham & Richard Cohen & Shigeyuki Abe, 2006. "The Rationality and Heterogeneity of Survey Forecasts of the Yen-Dollar Exchange Rate: A Reexamination," Working Papers 200611, University of Hawaii at Manoa, Department of Economics. [Downloadable!]
  7. Gregor W. Smith & James Yetman, 2007. "The Curse of Irving Fisher (Professional Forecasters' Version)," Working Papers 1144, Queen's University, Department of Economics. [Downloadable!]
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