IDEAS home Printed from https://ideas.repec.org/a/eee/econom/v150y2009i2p322-331.html
   My bibliography  Save this article

The role of beliefs in inference for rational expectations models

Author

Listed:
  • Lehmann, Bruce N.

Abstract

This paper discusses inference for rational expectations models estimated via minimum distance methods by characterizing the probability beliefs regarding the data generating process (DGP) that are compatible with given moment conditions. The null hypothesis is taken to be rational expectations and the alternative hypothesis to be distorted beliefs. This distorted beliefs alternative is analyzed from the perspective of a hypothetical semiparametric Bayesian who believes the model and uses it to learn about the DGP. This interpretation provides a different perspective on estimates, test statistics, and confidence regions in large samples, particularly regarding the economic significance of rejections in rational expectations models. A suggestive application to the equity premium puzzle is examined.

Suggested Citation

  • Lehmann, Bruce N., 2009. "The role of beliefs in inference for rational expectations models," Journal of Econometrics, Elsevier, vol. 150(2), pages 322-331, June.
  • Handle: RePEc:eee:econom:v:150:y:2009:i:2:p:322-331
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0304-4076(08)00228-5
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Lars Peter Hansen, 2007. "Beliefs, Doubts and Learning: Valuing Macroeconomic Risk," American Economic Review, American Economic Association, vol. 97(2), pages 1-30, May.
    2. Yuichi Kitamura, 2006. "Empirical Likelihood Methods in Econometrics: Theory and Practice," Levine's Bibliography 321307000000000307, UCLA Department of Economics.
    3. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-1054, July.
    4. Back, Kerry & Brown, David P., 1992. "GMM, maximum likelihood, and nonparametric efficiency," Economics Letters, Elsevier, vol. 39(1), pages 23-28, May.
    5. Kim, Jae-Young, 2002. "Limited information likelihood and Bayesian analysis," Journal of Econometrics, Elsevier, vol. 107(1-2), pages 175-193, March.
    6. Chamberlain, Gary, 1987. "Asymptotic efficiency in estimation with conditional moment restrictions," Journal of Econometrics, Elsevier, vol. 34(3), pages 305-334, March.
    7. Lucas, Robert E, Jr, 1980. "Methods and Problems in Business Cycle Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 12(4), pages 696-715, November.
    8. Susanne M. Schennach, 2005. "Bayesian exponentially tilted empirical likelihood," Biometrika, Biometrika Trust, vol. 92(1), pages 31-46, March.
    9. Rietz, Thomas A., 1988. "The equity risk premium a solution," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 117-131, July.
    10. Nicole A. Lazar, 2003. "Bayesian empirical likelihood," Biometrika, Biometrika Trust, vol. 90(2), pages 319-326, June.
    11. Back, Kerry & Brown, David P, 1993. "Implied Probabilities in GMM Estimators," Econometrica, Econometric Society, vol. 61(4), pages 971-975, July.
    12. Yuichi Kitamura, 2006. "Empirical Likelihood Methods in Econometrics: Theory and Practice," Cowles Foundation Discussion Papers 1569, Cowles Foundation for Research in Economics, Yale University.
    13. Song Xi Chen & Hengjian Cui, 2006. "On Bartlett correction of empirical likelihood in the presence of nuisance parameters," Biometrika, Biometrika Trust, vol. 93(1), pages 215-220, March.
    14. Robert J. Barro, 2005. "Rare Events and the Equity Premium," NBER Working Papers 11310, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Chong, Lucy Lee-Yun & Puah, Chin-Hong & Md Isa, Abu Hassan, 2012. "Theory of rational expectations hypothesis: banks and other financial institutions in Malaysia," MPRA Paper 36657, University Library of Munich, Germany.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:econom:v:150:y:2009:i:2:p:322-331. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/jeconom .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.