Working Paper: NBER ID: w0726
Authors: Andrew B. Abel; Frederic S. Mishkin
Abstract: This paper analyzes an important class of models in which expectations play an important role. Topics included in the analysis are tests of: (1) rationality of forecasts in either market or survey data, (2) capital market efficiency, (3) the short-run neutrality of monetary policy and, (4) Granger causality in macroeconometric models. The common elements of these tests are highlighted. In particular, cross-equation tests for rationality or the short-run neutrality of money are shown to be equivalent to more common regression tests in the literature. Also discussed are the conditions for identification and the implications for whether hypotheses are testable.
Keywords: No keywords provided
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| anticipated monetary policy (E52) | output (C67) |
| anticipated monetary policy (E52) | employment (J68) |
| one variable Granger-causes another (C29) | potential causal relationship (C32) |
| rational expectations (D84) | market outcomes (P42) |
| subjective expectation of returns (D84) | objective expectation of returns (D84) |
| tests of rationality in capital markets (G41) | holding-period returns (G12) |