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

Author/Editor:

Olivier Coibion ; Yuriy Gorodnichenko

Publication Date:

December 20, 2012

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

We propose a new approach to test the full-information rational expectations hypothesis which can identify whether rejections of the arise from information rigidities. This approach quantifies the economic significance of departures from the 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. 2012/296

Subject:

Economic forecasting Economic theory Industrial production Inflation Oil prices Prices Production Rational expectations

English

Publication Date:

December 20, 2012

ISBN/ISSN:

9781475519242/1018-5941

Stock No:

WPIEA2012296

Pages:

55

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