Survey Evidence on The Rationality of Interest Rate Expectations
AbstractAn analysis of predictions of six interest rates over 3-months-ahead and 6-months-aheadhorizons, surveyed regularly over eight years, casts doubt on the hypothesis that market participants' expectations are 'rational' in Muth's sense. Tests show that the survey respondents did not make unbiased predictions, that (especially for the 6-months-ahead predictions) they did not efficiently exploit the information contained in past interest rate movements, that their respective 3-months-ahead and 6-months-ahead predictions failed to be consistent in the sense required for 'rationality', and that (for long-term but not short-term interest rates) their predictions failed to exploit efficiently the information contained in common macroeconomic and macro-policy variables other than the money stock.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0261.
Date of creation: Dec 1980
Date of revision:
Publication status: published as Friedman, Benjamin M. "Survey Evidence on the Rationality of Interest Rate Expectations." Journal of Monetary Economics, Vol. 6, No. 4, (October 1980) , pp. 453-465.
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