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Measurement Errors and Tests for Rationality

Author

Listed:
  • Jeong, Jinook
  • Maddala, G S

Abstract

The traditional tests for rationality have often rejected the hypothesis of rationality for survey data on expectations. It has been argued that, in the presence of unit roots, cointegration tests should be applied. The cointegration tests have often failed to reject the hypothesis of rationality. The present paper argues that errors in variables affect tests of rationality. The authors use multiple sources of expectations to correct for the errors-in-variables bias but find that the hypothesis of rationality is rejected even after this correction. This paper uses survey data on interest rates, stock prices, and exchange rates.

Suggested Citation

  • Jeong, Jinook & Maddala, G S, 1991. "Measurement Errors and Tests for Rationality," Journal of Business & Economic Statistics, American Statistical Association, vol. 9(4), pages 431-439, October.
    • Handle: RePEc:bes:jnlbes:v:9:y:1991:i:4:p:431-39
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    Citations

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    Cited by:

    1. Denyse L. Dagenais & Marcel Dagenais, 1995. "Higher Moment Estimators for Linear Regression Models With Errors in the Variables," CIRANO Working Papers 95s-13, CIRANO.
    2. Fildes, Robert & Stekler, Herman, 2002. "The state of macroeconomic forecasting," Journal of Macroeconomics, Elsevier, vol. 24(4), pages 435-468, December.
    3. Berna Karali & Scott H. Irwin & Olga Isengildina‐Massa, 2020. "Supply Fundamentals and Grain Futures Price Movements," American Journal of Agricultural Economics, John Wiley & Sons, vol. 102(2), pages 548-568, March.
    4. Chong Terence Tai-Leung & Chen Haiqiang & Wong Tsz-Nga & Yan Isabel Kit-Ming, 2018. "Estimation and inference of threshold regression models with measurement errors," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 22(2), pages 1-16, April.
    5. repec:lan:wpaper:539557 is not listed on IDEAS
    6. Silva Lopes, Artur, 1994. "A "hipótese das expectativas racionais": teoria e realidade (uma visita guiada à literatura até 1992) [The "rational expectations hypothesis": theory and reality (a guided tour ," MPRA Paper 9699, University Library of Munich, Germany, revised 23 Jul 2008.
    7. Artur C. B. Da Silva Lopes, 1998. "On the 'restricted cointegration test' as a test of the rational expectations hypothesis," Applied Economics, Taylor & Francis Journals, vol. 30(2), pages 269-278, February.
    8. repec:lan:wpaper:413 is not listed on IDEAS
    9. Jing Tian & Firmin Doko Tchatoka & Thomas Goodwin, 2022. "Are internally consistent forecasts rational?," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 41(7), pages 1338-1355, November.
    10. Dagenais, Marcel G. & Dagenais, Denyse L., 1997. "Higher moment estimators for linear regression models with errors in the variables," Journal of Econometrics, Elsevier, vol. 76(1-2), pages 193-221.
    11. Tobias F. Rötheli, 1999. "Selling prices and profits: what survey data tell about firms' rationality," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 20(6), pages 319-325.
    12. Davies, Anthony & Lahiri, Kajal, 1995. "A new framework for analyzing survey forecasts using three-dimensional panel data," Journal of Econometrics, Elsevier, vol. 68(1), pages 205-227, July.
    13. repec:lan:wpaper:470 is not listed on IDEAS
    14. Michela Nardo, 2003. "The Quantification of Qualitative Survey Data: A Critical Assessment," Journal of Economic Surveys, Wiley Blackwell, vol. 17(5), pages 645-668, December.
    15. repec:lan:wpaper:425 is not listed on IDEAS
    16. Pham Van Ha & Tom Kompas, 2008. "Productivity and Exchange Rate Dynamics: Supporting the Harrod-Balassa-Samuelson Hypothesis through an ‘Errors in Variables’ Analysis," International and Development Economics Working Papers idec08-03, International and Development Economics.
    17. Philip Hans Franses, 2021. "Testing bias in professional forecasts," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 40(6), pages 1086-1094, September.

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