IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Comparing behavioural and rational expectations for the US post-war economy

The banking crisis has caused a resurgence of interest in behavioural models of expectations in macroeconomics. Here we evaluate behavioural and rational expectations econometrically in a New Keynesian framework, using US post-war data and the method of indirect inference. We find that after full re-estimation the model with behavioural expectations is strongly rejected by the data, whereas the standard rational expectations version passes the tests by a substantial margin.

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.

File URL: http://patrickminford.net/wp/E2012_21.pdf
Download Restriction: no

Paper provided by Cardiff University, Cardiff Business School, Economics Section in its series Cardiff Economics Working Papers with number E2012/21.

as
in new window

Length: 19 pages
Date of creation: Aug 2012
Date of revision:
Handle: RePEc:cdf:wpaper:2012/21
Contact details of provider: Postal: Aberconway Building, Colum Drive, CARDIFF, CF10 3EU
Phone: +44 (0) 29 20874417
Fax: +44 (0) 29 20874419
Web page: http://business.cardiff.ac.uk/research/academic-sections/economics/working-papers

More information through EDIRC

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.:

as in new window
  1. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
  2. repec:att:wimass:9530 is not listed on IDEAS
  3. Hommes, Cars, 2011. "The heterogeneous expectations hypothesis: Some evidence from the lab," Journal of Economic Dynamics and Control, Elsevier, vol. 35(1), pages 1-24, January.
  4. Wickens, Michael R, 1982. "The Efficient Estimation of Econometric Models with Rational Expectations," Review of Economic Studies, Wiley Blackwell, vol. 49(1), pages 55-67, January.
  5. Gregory, Allan W & Smith, Gregor W, 1991. "Calibration as Testing: Inference in Simulated Macroeconomic Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 9(3), pages 297-303, July.
  6. Stefano DellaVigna, 2007. "Psychology and Economics: Evidence from the Field," NBER Working Papers 13420, National Bureau of Economic Research, Inc.
  7. Le, Vo Phuong Mai & Minford, Patrick & Wickens, Michael R., 2009. "How much nominal rigidity is there in the US Economy? Testing a New Keynesian DSGE model using indirect inference," CEPR Discussion Papers 7537, C.E.P.R. Discussion Papers.
  8. ap Gwilym, Rhys, 2009. "Can behavioral finance models account for historical asset prices?," Cardiff Economics Working Papers E2009/17, Cardiff University, Cardiff Business School, Economics Section.
  9. Jeremy Rudd & Karl Whelan, 2003. "Can rational expectations sticky-price models explain inflation dynamics?," Finance and Economics Discussion Series 2003-46, Board of Governors of the Federal Reserve System (U.S.).
  10. Carriero, Andrea, 2008. "A simple test of the New Keynesian Phillips Curve," Economics Letters, Elsevier, vol. 100(2), pages 241-244, August.
  11. Alan Kirman, 2011. "Learning in Agent-based Models," Eastern Economic Journal, Palgrave Macmillan, vol. 37(1), pages 20-27.
  12. Brock, W.A. & Hommes, C.H., 1996. "A Rational Route to Randomness," Working papers 9530r, Wisconsin Madison - Social Systems.
  13. Smets, Frank & Wouters, Rafael, 2007. "Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach," CEPR Discussion Papers 6112, C.E.P.R. Discussion Papers.
  14. Gourieroux, C. & Monfort, A. & Renault, E., 1992. "Indirect Inference," Papers 92.279, Toulouse - GREMAQ.
  15. Smith, A A, Jr, 1993. "Estimating Nonlinear Time-Series Models Using Simulated Vector Autoregressions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(S), pages S63-84, Suppl. De.
  16. Sargent, Thomas J., 1993. "Bounded Rationality in Macroeconomics: The Arne Ryde Memorial Lectures," OUP Catalogue, Oxford University Press, number 9780198288695, March.
  17. Boswijk, H. Peter & Hommes, Cars H. & Manzan, Sebastiano, 2007. "Behavioral heterogeneity in stock prices," Journal of Economic Dynamics and Control, Elsevier, vol. 31(6), pages 1938-1970, June.
  18. Le, Vo Phuong Mai & Meenagh, David & Minford, Patrick & Wickens, Michael, 2012. "Testing DSGE models by Indirect inference and other methods: some Monte Carlo experiments," Cardiff Economics Working Papers E2012/15, Cardiff University, Cardiff Business School, Economics Section.
  19. William A. Branch, 2004. "The Theory of Rationally Heterogeneous Expectations: Evidence from Survey Data on Inflation Expectations," Economic Journal, Royal Economic Society, vol. 114(497), pages 592-621, 07.
  20. Paul De Grauwe, 2010. "Top-Down versus Bottom-Up Macroeconomics," CESifo Working Paper Series 3020, CESifo Group Munich.
  21. Le, Vo Phuong Mai & Meenagh, David & Minford, Patrick, 2012. "What causes banking crises? An empirical investigation," Cardiff Economics Working Papers E2012/14, Cardiff University, Cardiff Business School, Economics Section, revised Apr 2013.
  22. Paul De Grauwe, 2010. "Top-Down versus Bottom-Up Macroeconomics," CESifo Economic Studies, CESifo, vol. 56(4), pages 465-497, December.
  23. Michel Juillard, 2001. "DYNARE: A program for the simulation of rational expectation models," Computing in Economics and Finance 2001 213, Society for Computational Economics.
  24. L. Ingber, 1996. "Adaptive simulated annealing (ASA): Lessons learned," Lester Ingber Papers 96as, Lester Ingber.
  25. Frijns, Bart & Lehnert, Thorsten & Zwinkels, Remco C.J., 2010. "Behavioral heterogeneity in the option market," Journal of Economic Dynamics and Control, Elsevier, vol. 34(11), pages 2273-2287, November.
  26. Minford, Patrick & Ou, Zhirong, 2009. "Testing the Monetary Policy Rule in the US: a Reconsideration of the Fed’s Behaviour," CEPR Discussion Papers 7575, C.E.P.R. Discussion Papers.
  27. L. Ingber, 2012. "Adaptive simulated annealing," Lester Ingber Papers 12as, Lester Ingber.
  28. McCallum, Bennett T, 1976. "Rational Expectations and the Natural Rate Hypothesis: Some Consistent Estimates," Econometrica, Econometric Society, vol. 44(1), pages 43-52, January.
  29. de Jong, Eelke & Verschoor, Willem F.C. & Zwinkels, Remco C.J., 2009. "Behavioural heterogeneity and shift-contagion: Evidence from the Asian crisis," Journal of Economic Dynamics and Control, Elsevier, vol. 33(11), pages 1929-1944, November.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:cdf:wpaper:2012/21. 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: (Bruce Webb)

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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.