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On the power of direct tests for rational expectations against the alternative of constant gain learning

Author

Listed:
  • Victor Bystrov

    () (University of Lodz, Institute of Economics)

  • Anna Staszewska-Bystrova

    () (University of Lodz, Chair of Econometric Models and Forecasts)

Abstract

In this paper we study the power of direct tests for rational expectations against the constant gain learning alternative. The investigation is by means of a Monte Carlo study. The tests considered use quantitative expectations data and qualitative survey data that has been quantified. The main finding is that the power of tests for rational expectations against constant gain learning may be very small, making it impossible to distinguish the hypotheses.

Suggested Citation

  • Victor Bystrov & Anna Staszewska-Bystrova, 2010. "On the power of direct tests for rational expectations against the alternative of constant gain learning," Bank i Kredyt, Narodowy Bank Polski, vol. 41(6), pages 71-84.
  • Handle: RePEc:nbp:nbpbik:v:41:y:2010:i:6:p:71-84
    Note: Support from the EU Commission through MRTN-CT-2006-034270 COMISEF is gratefully acknowledged. The authors would like to thank two anonymous referees for comments and suggestions which helped to improve this paper.
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    References listed on IDEAS

    as
    1. Smith, Jeremy & McAleer, Michael, 1995. "Alternative Procedures for Converting Qualitative Response Data to Quantitative Expectations: An Application to Australian Manufacturing," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(2), pages 165-185, April-Jun.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    adaptive learning; tests for rational expectations; quantification methods; constant gain least squares;

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General

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