Information Rigidity and the Expectations Formation Process: A Simple Framework and New Facts

 
Author/Editor: Coibion, Olivier ; Gorodnichenko, Yuriy
 
Publication Date: December 20, 2012
 
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Summary: We propose a new approach to test the full-information rational expectations hypothesis which can identify whether rejections of the null arise from information rigidities. This approach quantifies the economic significance of departures from the null and the underlying degree of information rigidity. Applying this approach to U.S. and international data of professional forecasters and other agents yields pervasive evidence consistent with the presence of information rigidities. These results therefore provide a set of stylized facts which can be used to calibrate imperfect information models. Finally, we document evidence of state-dependence in the expectations formation process.
 
Series: Working Paper No. 12/296
Subject(s): Economic forecasting | Economic models

 
English
Publication Date: December 20, 2012
ISBN/ISSN: 9781475519242/2227-8885 Format: Paper
Stock No: WPIEA2012296 Pages: 56
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