Autori
Waldmann, Robert J.
Ehrbeck, Tilman

Titolo
Can forecasters' motives explain rejection of the rational expectations hypothesis?
Periodico
European University Institute of Badia Fiesolana (Fi). Department of Economics - Working papers
Anno: 1994 - Fascicolo: 2 - Pagina iniziale: 1 - Pagina finale: 15

The predictions of the rational expectations hypothesis have been rejected by analysis of surveys of expectations. These results have left many economists unconvinced, partly because of econometric problems, but largely because the rational expectations hypothesis is tested along with the auxiliary hypothesis that survey participants aim to minimize squared forecast errors. It is often argued that a careful analysis of survey participants true aims would reconcile their predictions with the rational expectations hypothesis. This paper presents a model in which fully rational agents choose to make forecasts different from the conditional expected value of the variable forecasted. This model is interesting because it implies that it is rational to extrapolate short run trends in forecasts. More importantly, the model yields simple predictions which are tested using predictions of interest rates from the North Holland Economic Forecasts publication. The predictions of the rational expectations hypothesis with a quadratic loss function and with our model are both rejected. The failure of an effort to reconcile forecastable errors with the rational expectations hypothesis strengthens the evidence against the hypothesis.



Testo completo: http://hdl.handle.net/1814/482

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