The unbiasedness and efficiency tests of the rational expectations hypothesis
This study examines the direct tests of the Rational Expectations Hypothesis (REH). Pesando (1975) employs the Livingston survey data of business economists and reaches the rejection of rationality and consistency but not rejection of the efficiency. Analyzing the same data, Carlson (1977) rejects these three hypotheses that Pesando tests when he uses expectations on CPI, but doesn’t reject hypotheses as he uses expectations on WPI. Turnovsky (1980) tests the unbiasedness property of the REH using Livingston data and finds different results for the different periods of data. Friedman (1980) applies the unbiasedness and efficiency tests using data of The Goldsmith-Nagan Bond and Money Market Letter and reaches mixed results for the REH. Ball and Croushore (1995) use the several survey results and univariate forecasting models. Their results provide a strong rejection of the REH.
|Date of creation:||10 Aug 2001|
|Date of revision:||11 Mar 2010|
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- Ball, Laurence & Croushore, Dean, 2003.
" Expectations and the Effects of Monetary Policy,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 35(4), pages 473-484, August.
- Laurence Ball & Dean Croushore, 1998. "Expectations and the effects of monetary policy," Working Papers 98-13, Federal Reserve Bank of Philadelphia.
- Laurence Ball & Dean Croushore, 2001. "Expectations and the effects of monetary policy," Working Papers 01-12, Federal Reserve Bank of Philadelphia.
- Laurence Ball & Dean Croushore, 1995. "Expectations and the Effects of Monetary Policy," NBER Working Papers 5344, National Bureau of Economic Research, Inc.
- Laurence Ball & Dean Croushore, 1995. "Expectations and the effects of monetary policy," Working Papers 95-22, Federal Reserve Bank of Philadelphia.
- Pearce, Douglas K, 1979. "Comparing Survey and Rational Measures of Expected Inflation: Forecast Performance and Interest Rate Effects," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(4), pages 447-456, November.
- Pesando, James E, 1975. "A Note on the Rationality of the Livingston Price Expectations," Journal of Political Economy, University of Chicago Press, vol. 83(4), pages 849-858, August.
- Figlewski, Stephen & Wachtel, Paul, 1981. "The Formation of Inflationary Expectations," The Review of Economics and Statistics, MIT Press, vol. 63(1), pages 1-10, February.
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