Rationality, specification tests, and macroeconomic models

Dennis Hoffman, Don E. Schlagenhauf

Research output: Contribution to journalArticle

2 Citations (Scopus)

Abstract

Rational expectation models embody cross-equation restrictions that are implied by the theory of rational expectations. In this paper we illustrate how tests of these restrictions may be implemented in terms of general macroeconomic models by employing the models of Taylor and Sargent as examples. In addition, the more important issue of the proper interpretation of the results of these tests is addressed. We contend that tests for rationality should become part of the model-building process as they are akin to specification tests for models in which rational expectations is treated as the maintained hypothesis. A procedure is suggested when the restriction are inconsistent with data. Special emphasis is placed upon examining how changes in specifications of the model's exogenous variables can influence test results.

Original languageEnglish (US)
Pages (from-to)367-386
Number of pages20
JournalJournal of Econometrics
Volume21
Issue number3
DOIs
StatePublished - 1983

Fingerprint

Specification Test
Macroeconomics
Rationality
Rational Expectations
Restriction
Model
Inconsistent
Specification test
Macroeconomic models
Specification
Rational expectations

ASJC Scopus subject areas

  • Economics and Econometrics
  • Finance
  • Statistics and Probability

Cite this

Rationality, specification tests, and macroeconomic models. / Hoffman, Dennis; Schlagenhauf, Don E.

In: Journal of Econometrics, Vol. 21, No. 3, 1983, p. 367-386.

Research output: Contribution to journalArticle

Hoffman, Dennis ; Schlagenhauf, Don E. / Rationality, specification tests, and macroeconomic models. In: Journal of Econometrics. 1983 ; Vol. 21, No. 3. pp. 367-386.
@article{e420bcce86e449b887d035a0a416273d,
title = "Rationality, specification tests, and macroeconomic models",
abstract = "Rational expectation models embody cross-equation restrictions that are implied by the theory of rational expectations. In this paper we illustrate how tests of these restrictions may be implemented in terms of general macroeconomic models by employing the models of Taylor and Sargent as examples. In addition, the more important issue of the proper interpretation of the results of these tests is addressed. We contend that tests for rationality should become part of the model-building process as they are akin to specification tests for models in which rational expectations is treated as the maintained hypothesis. A procedure is suggested when the restriction are inconsistent with data. Special emphasis is placed upon examining how changes in specifications of the model's exogenous variables can influence test results.",
author = "Dennis Hoffman and Schlagenhauf, {Don E.}",
year = "1983",
doi = "10.1016/0304-4076(83)90051-9",
language = "English (US)",
volume = "21",
pages = "367--386",
journal = "Journal of Econometrics",
issn = "0304-4076",
publisher = "Elsevier BV",
number = "3",

}

TY - JOUR

T1 - Rationality, specification tests, and macroeconomic models

AU - Hoffman, Dennis

AU - Schlagenhauf, Don E.

PY - 1983

Y1 - 1983

N2 - Rational expectation models embody cross-equation restrictions that are implied by the theory of rational expectations. In this paper we illustrate how tests of these restrictions may be implemented in terms of general macroeconomic models by employing the models of Taylor and Sargent as examples. In addition, the more important issue of the proper interpretation of the results of these tests is addressed. We contend that tests for rationality should become part of the model-building process as they are akin to specification tests for models in which rational expectations is treated as the maintained hypothesis. A procedure is suggested when the restriction are inconsistent with data. Special emphasis is placed upon examining how changes in specifications of the model's exogenous variables can influence test results.

AB - Rational expectation models embody cross-equation restrictions that are implied by the theory of rational expectations. In this paper we illustrate how tests of these restrictions may be implemented in terms of general macroeconomic models by employing the models of Taylor and Sargent as examples. In addition, the more important issue of the proper interpretation of the results of these tests is addressed. We contend that tests for rationality should become part of the model-building process as they are akin to specification tests for models in which rational expectations is treated as the maintained hypothesis. A procedure is suggested when the restriction are inconsistent with data. Special emphasis is placed upon examining how changes in specifications of the model's exogenous variables can influence test results.

UR - http://www.scopus.com/inward/record.url?scp=48749149116&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=48749149116&partnerID=8YFLogxK

U2 - 10.1016/0304-4076(83)90051-9

DO - 10.1016/0304-4076(83)90051-9

M3 - Article

VL - 21

SP - 367

EP - 386

JO - Journal of Econometrics

JF - Journal of Econometrics

SN - 0304-4076

IS - 3

ER -