An Indirect Test for the Specification of Expectation Regimes

This paper develops an empirical strategy for testi ng competing hypotheses of expectation regimes when direct measures of expectati ons are unavailable. The procedure takes as given an assumed structural relation ship between expected values of exogeneous variables and a given decision variab le. By imposing different expectation regimes on this model, the authors obtain an artificial nesting of the hypothesized regimes which allows us to test whethe r any specification dominates. This methodology is extended to multipleequation applications with any number of hypothesized expectation regimes. The tests are illustrated using a model of the response of county-level farm acreage allocati on to expected commodity prices.