This paper investigates the issue of rational expectations using inflation forecasts from the Survey of Professional Forecasters (SPF) and the Green Book. We provide an alternative test of rational expectations hypothesis by measuring the degree of persistence of potential systematic mistakes....

Canonical analysis of the classical general equilibrium model demonstrates the existence of an open and dense subset of standard economies that possess fully-revealing rational expectations equilibria. This paper shows that the analogous result is not true in urban economies under appropriate...

Canonical analysis of the classical general equilibrium model demonstrates the existence of an open and dense subset of standard economies that possess fully-revealing rational expectations equilibria. This paper shows that the analogous result is not true in urban economies under reasonable...

There is hope for the generalized method of moments (GMM). Lanne and Saikkonen (2011) show that the GMM estimator is inconsistent, when the instruments are lags of noncausal variables. This paper argues that this inconsistency depends on distributional assumptions, that do not always hold. In...

Using a multi-country general equilibrium model, we demonstrate that when agents face credit constraints in an international financial market, rational expectations, which are ex-post heterogeneous between countries, cause business fluctuations. If the international financial market becomes...

The Rational Expectations Hypothesis (REH) states that the actual outcome will be identical to the optimal forecast when all obtainable information had been utilized in forming the expectations. This study intends to empirically examine the existence of rational behavior in the banks and other...

We obtain a closed-form solution to rational expectations equilibrium with transaction costs in the framework of Grossman and Stiglitz (1980) [On the impossibility of informationally efficient markets. American Economic Review 70, 543-566]. Individual private information incorporated into prices...

The purpose of this paper is twofold: first, to discuss the theoretical foundations and policy implications of two of the offshoots of modern macroeconomics viz., supply-side economics and rational expectations; and second to evaluate the recent development of thinking in macroeconomics. Thereby...

This paper studies whether anomalies in consumption can be explained by a behavioral model in which agents make predictable errors in forecasting income. We use a micro-data set containing subjective expectations about future income. The paper shows that, the null hypothesis of rational...

This note presents a simple generalization of the adaptive expectations mechanism in which the learning parameter is time variant. It is shown that expectations generated in this way are rational in the sense of producing minimum mean squared forecast errors for a broad class of time series...