Comparing behavioural and rational expectations for the US post-war economy

Chunping Liu; Patrick Minford

The banking crisis has caused a resurgence of interest in behavioural models of expectations in macroeconomics. Here we evaluate behavioural and rational expectations econometrically in a New Keynesian framework, using US post-war data and the method of indirect inference. We find that after full re-estimation the model with behavioural expectations is strongly rejected by the data, whereas the standard rational expectations version passes the tests by a substantial margin.

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Year of publication:	2012
Authors:	Liu, Chunping ; Minford, Patrick
Publisher:	Cardiff : Cardiff Univ, Cardiff Business School, Economics Section
Subject:	behavioural expectation \| rational expectation \| bank crisis \| indirect inference \| Rationale Erwartung \| Rational expectations \| Erwartungsbildung \| Expectation formation \| Verhaltensökonomik \| Behavioral economics \| Theorie \| Theory \| Großbritannien \| United Kingdom \| Bankenkrise \| Banking crisis \| Statistischer Test \| Statistical test \| Schätzung \| Estimation \| Neoklassische Synthese \| Neoclassical synthesis