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Near-Rational Expectations: How Far are Surveys from Rationality?

Author

Listed:
  • Sergey Ivashchenko

    (Saint Petersburg Institute for Economics and Mathematics (Russian Academy of Sciences))

  • Rangan Gupta

    (University of Pretoria, Pretoria, South Africa)

Abstract

New simple forms of deviation from rational expectations (RE) are suggested: temporary near-rational expectations (TNRE) and persistent near-rational expectations (PNRE). The medium-scale DSGE model was estimated with the RE, the TNRE and the PNRE. It was estimated with and without observations from the survey's expectations. The quality of the out-of-sample forecasts was estimated. It is shown that near-rational concepts produce the same advantages as learning, without its disadvantages (including the absence of ‘learning expectations’ reactions on policy change). The influence of the observed expectations on forecasting quality was analysed.

Suggested Citation

  • Sergey Ivashchenko & Rangan Gupta, 2016. "Near-Rational Expectations: How Far are Surveys from Rationality?," Working Papers 201655, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:201655
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    References listed on IDEAS

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    1. Emilian DOBRESCU, 2020. "Self-fulfillment degree of economic expectations within an integrated space: The European Union case study," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 5-32, December.

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    More about this item

    Keywords

    DSGE; out-of-sample forecasts; survey expectations; near-rational expectations;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications

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