Businessmen's Expectations Are Neither Rational nor Adaptive
A framework which allows for the joint testing of the adaptive and rational expectations hypotheses is presented. We assume joint normality of expectations, realizations and variables in the information set, allowing for parsimonious interpretation of the data; conditional first moments are linear in the conditioning variables, and we can easily recover regression coefficients from them and test simple hypotheses by imposing zero restrictions on these coefficients. The nature of the data, which are responses to business surveys and are all categorical, requires simulation techniques to obtain full information maximum likelihood estimates. We use a latent variable model which allows for the construction of a simple likelihood function. However, this likelihood contains multi-(four)dimensional integrals, requiring simulators to evaluate. Simulated maximum-likelihood estimation is carried out using the Geweke-Hajivassilou-Keane (GHK) method, which is consistent and has low variance. The latter is crucial when maximizing the log-likelihood directly. Identification of the parameters is achieved by placing restrictions on the response thresholds and/or the variances. We find that we can reject both hypotheses.
|Date of creation:||1997|
|Date of revision:|
|Contact details of provider:|| Postal: L 7,1; D - 68161 Mannheim|
Web page: http://www.zew.de/
More information through EDIRC
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.:
- Nerlove, Marc & Ross, David & Willson, Douglas, 1993. "The importance of seasonality in inventory models : Evidence from business survey data," Journal of Econometrics, Elsevier, vol. 55(1-2), pages 105-128.
- Vassilis A. Hajivassiliou & Axel Borsch-Supan, 1990.
"Smooth Unbiased Multivariate Probability Simulators for Maximum Likelihood Estimation of Limited Dependent Variable Models,"
Cowles Foundation Discussion Papers
960, Cowles Foundation for Research in Economics, Yale University.
- Borsch-Supan, Axel & Hajivassiliou, Vassilis A., 1993. "Smooth unbiased multivariate probability simulators for maximum likelihood estimation of limited dependent variable models," Journal of Econometrics, Elsevier, vol. 58(3), pages 347-368, August.
- Ariel Pakes, 1984.
"Patents as Options: Some Estimates of the Value of Holding European Patent Stocks,"
NBER Working Papers
1340, National Bureau of Economic Research, Inc.
- Pakes, Ariel S, 1986. "Patents as Options: Some Estimates of the Value of Holding European Patent Stocks," Econometrica, Econometric Society, vol. 54(4), pages 755-84, July.
- Nerlove, Marc, 1983.
"Expectations, Plans, and Realizations in Theory and Practice,"
Econometric Society, vol. 51(5), pages 1251-79, September.
- Marc Nerlove, 1981. "Expectations, Plans and Realizations: In Theory and Practice," Discussion Papers 511, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Pesaran, M. Hashem & Samiei, Hossein, 1995.
"Limited-dependent rational expectations models with future expectations,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 19(8), pages 1325-1353, November.
- Pesaran, M.H. & Samiei, H., 1993. "Limited-Dependaent Rational Expectations Models with Future Expectations," Cambridge Working Papers in Economics 9321, Faculty of Economics, University of Cambridge.
- Til Schuermann & Melvyn Weeks, . "Why You May Need Not Worry About Finite Sample Bias In Simulated Maximum Likelihood Estimation," Discussion Papers 94/18, Department of Economics, University of York.
- Daniel McFadden, 1987.
"A Method of Simulated Moments for Estimation of Discrete Response Models Without Numerical Integration,"
464, Massachusetts Institute of Technology (MIT), Department of Economics.
- McFadden, Daniel, 1989. "A Method of Simulated Moments for Estimation of Discrete Response Models without Numerical Integration," Econometrica, Econometric Society, vol. 57(5), pages 995-1026, September.
- Pakes, Ariel & Pollard, David, 1989. "Simulation and the Asymptotics of Optimization Estimators," Econometrica, Econometric Society, vol. 57(5), pages 1027-57, September.
- Marc Nerlove, 1967. "Distributed Lags and Unobserved Components in Economic Time Series," Cowles Foundation Discussion Papers 221, Cowles Foundation for Research in Economics, Yale University.
- Sims, Christopher A, 1971. "Discrete Approximations to Continuous Time Distributed Lags in Econometrics," Econometrica, Econometric Society, vol. 39(3), pages 545-63, May.
- Wai-Yin Poon & Sik-Yum Lee, 1987. "Maximum likelihood estimation of multivariate polyserial and polychoric correlation coefficients," Psychometrika, Springer, vol. 52(3), pages 409-430, September.
- V A Hajivassiliou & DL McFadden, 1997.
"The Method of Simulated Scores for the Estimation of LDV Models,"
STICERD - Econometrics Paper Series
328, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
- Vassilis A. Hajivassiliou & Daniel L. McFadden, 1998. "The Method of Simulated Scores for the Estimation of LDV Models," Econometrica, Econometric Society, vol. 66(4), pages 863-896, July.
- Vassilis A. Hajivassiliou & Daniel L. McFadden, 1993. "The Method of Simulated Scores for the Estimation of LDV Models," Working Papers _023, Yale University.
- Keane, Michael P, 1994. "A Computationally Practical Simulation Estimator for Panel Data," Econometrica, Econometric Society, vol. 62(1), pages 95-116, January.
- Lovell, Michael C, 1986. "Tests of the Rational Expectations Hypothesis," American Economic Review, American Economic Association, vol. 76(1), pages 110-24, March.
- Ulf Olsson, 1979. "Maximum likelihood estimation of the polychoric correlation coefficient," Psychometrika, Springer, vol. 44(4), pages 443-460, December.
When requesting a correction, please mention this item's handle: RePEc:zbw:zewdip:9701. 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: (ZBW - German National Library of Economics)
If references are entirely missing, you can add them using this form.