A Note on the Rationality of the Livingston Price Expectations

Pesando, James E.

doi:10.1086/260359

Cited by 149 publications

(64 citation statements)

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“…Direct tests of the RE-hypothesis have been conducted by Pesando (1975), Carlson (1977), Mullineaux (1978) and Figlewski and Wachtel (1981), using Livingston's data on price expectations. The results of these tests do not give conclusive support to the RE-hypothesis.…”

Section: -1 Testing the Re-nr-hypothesis; A Reviewmentioning

confidence: 99%

Armax model specification testing, with an application to unemployment in the Netherlands

Bierens

1987

Journal of Econometrics

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In this paper we present a new model specification test for ARMAX models. The null hypothesis that the ARMAX model represents the conditional expectation of the dependent variable given the entire past of the economie time series process under review is tested against the alternative hypothesis that the null is false. The test involved is a consistent Standard nortnal test, as under the null hypothesis the test statistic is asymptotically N(0,1) distributed, whereas under the alternative that the null is false and under the hypothesis of strict stationarity of the data generating process the absolute value of the test statistic converges in probability to infinity. This test is applied to testing the rational expectations-natural rate (RE-NR) hypothesis for the Netherlands according to the approach of Sargent (1976), on the basis of monthly data and the ARMAX framework. As for the result, it appears that unemployment in the Netherlands is caused, in the sense of Granger (1969), by the money interest rate and unemployment itself.According to Sargent the RE-NR hypothesis therefore has to be rejected. This empirical result can be explained by Baumol's (1959) sales revenue maximization hypothesis, augmented with the hypothesis of a flexible labor effort rate.

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Section: -1 Testing the Re-nr-hypothesis; A Reviewmentioning

confidence: 99%

Armax model specification testing, with an application to unemployment in the Netherlands

Bierens

1987

Journal of Econometrics

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“…Thus failures to meet the criteria of effi-ciency and/or consistency are reported by Pesando (1975) and Carison (1977), failures to pass the unbiasedness tests by Wachtel (1974) and Gramlich, (1979). pearce (1979) shows that univariate time-series (ARIMA) models would have predicted inflation better than the Livingston averages did, which also contradicts the rationality of the latter.…”

Section: Evidencementioning

confidence: 98%

Business Cycles Analysis and Expectational Survey Data

Zarnowitz

1984

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“…The text that follows refers to Carison's findings. Earlier studies of this set of data used no timing adjustments (see Pesando, 1975, andCarison, 1977, for other references).…”

Section: Tests Of Bias and Autocorrelations Of Errorsmentioning

confidence: 99%

Information, Measurement, And Prediction In Economics

Zarnowitz

1979

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This paper examines the flow of production and use of economic information and analyzes the effects of measurement errors, particularly as transmitted through expectations and forecasts. Economic data are subject to a variety of errors, and the uncertainty about economic measures tends to increase further with the amount and complexity of the processing performed on the underlying data as well as with the distance between the user and the processor. With some exceptions, economic time series lag significantly behind their reference periods and many undergo large revisions.The effective information lag includes not only the time required for incremental data to be produced and transmitted but also the time required for the signals to be extracted by the user. This lag is substantial for many important series.In general, there is no presumption that the measurement errors are random: Systematic errors are frequent and their sources and forms vary so much that they may be difficult to detect. In times of strong shocks and surprising developments (such as occurred earlier in this decade), measurement of short-term changes in the economy is particularly difficult and current signals are apt to be often misinterpreted. This can result in broadly diffused decision errors which in time are discovered, leading to sharp corrective reactions.Aggregative predictions from well known and influential sources show certain coimnon patterns of error, which suggests that forecasters react similarly to the observed events and unanticipated shocks. Forecasts of GNP and related variables are adversely affected by errors in both the preliminary data and the base level estimates. There is some support here for the hypothesis that information lags play a significant role in generating business cycles, but it is important to note that the errors involved in predicting the future are typically much larger than the errors involved in estimating the present or recent past. Growth in the modern economy is motivated by the desire to accumulate human and physical resources (capital in the most general sense) and accomplished by actions that necessarily have long-term consequences. VictorThe decisions to choose these particular courses of action (strategies) involve similarly long expectations and often large risks of highly variable payoffs. Moreover, knowledge about the distribution of the "states of nature" conditioning the outcomes of such decisions is generally limited:for example, the timing and duration of the next economic slowdown or recession cannot be well estimated from the past incidence of such episodes. Hence, these decisions are typically "difficult" as well as "important." in terms of everyday language. Uncertainty and acting on fallible expectations cannot be avoided. The decisions are based on processes blending various amounts of experience and new learning, information and judgment. Data on the immediate environment of the individual decision maker, relating mainly to current and recent market transactions, are usua...

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A Note on the Rationality of the Livingston Price Expectations

Cited by 149 publications

References 10 publications

Armax model specification testing, with an application to unemployment in the Netherlands

Armax model specification testing, with an application to unemployment in the Netherlands

Business Cycles Analysis and Expectational Survey Data

Information, Measurement, And Prediction In Economics

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