The role of beliefs in inference for rational expectations models
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.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
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.:
- Kim, Jae-Young, 2002. "Limited information likelihood and Bayesian analysis," Journal of Econometrics, Elsevier, vol. 107(1-2), pages 175-193, March.
- Yuichi Kitamura, 2006. "Empirical Likelihood Methods in Econometrics: Theory and Practice," Levine's Bibliography 321307000000000307, UCLA Department of Economics.
- Back, Kerry & Brown, David P., 1992. "GMM, maximum likelihood, and nonparametric efficiency," Economics Letters, Elsevier, vol. 39(1), pages 23-28, May.
- 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.
- Yuichi Kitamura, 2006. "Empirical Likelihood Methods in Econometrics: Theory and Practice," Cowles Foundation Discussion Papers 1569, Cowles Foundation for Research in Economics, Yale University.
- Chamberlain, Gary, 1987. "Asymptotic efficiency in estimation with conditional moment restrictions," Journal of Econometrics, Elsevier, vol. 34(3), pages 305-334, March.
- Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
- Susanne M. Schennach, 2005. "Bayesian exponentially tilted empirical likelihood," Biometrika, Biometrika Trust, vol. 92(1), pages 31-46, March.
- Nicole A. Lazar, 2003. "Bayesian empirical likelihood," Biometrika, Biometrika Trust, vol. 90(2), pages 319-326, June.
- Robert J. Barro, 2005. "Rare Events and the Equity Premium," NBER Working Papers 11310, National Bureau of Economic Research, Inc.
- Rietz, Thomas A., 1988. "The equity risk premium a solution," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 117-131, July.
- Back, Kerry & Brown, David P, 1993. "Implied Probabilities in GMM Estimators," Econometrica, Econometric Society, vol. 61(4), pages 971-75, July.
- 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.
- Lars Peter Hansen, 2007. "Beliefs, Doubts and Learning: Valuing Macroeconomic Risk," American Economic Review, American Economic Association, vol. 97(2), pages 1-30, May.
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: (Zhang, Lei)
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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 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.