Bounded Price Variation and Rational Expectations in an Endogenous Switching Model of the U.S. Corn Market
A model that includes bounded price variation and rational expectations by producers is estimated for the U.S. corn market. The resulting model specification is highly nonlinear though, since the probability of market equilibrium must be determined endogenously. Unlike previous research, the cross-equation restrictions implied by the rational expectations hypothesis are incorporated in the bounded prices model by using Fair and Taylor's (1983) procedure for obtaining maximum likelihood estimates of nonlinear rational expectations models. The resulting model is compared against a standard equilibrium model with naive expectations. The results show the bounded prices model is a superior specification. Copyright 1989 by MIT Press.
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|Date of creation:||01 Nov 1989|
|Date of revision:|
|Publication status:||Published in Review of Economics and Statistics, November 1989, vol. LXXI no. 4, pp. 605-613|
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