IDEAS home Printed from https://ideas.repec.org/h/spr/spshcp/978-3-030-41357-6_12.html
   My bibliography  Save this book chapter

The Permanent-Transitory Confusion: Implications for Tests of Market Efficiency and for Expected Inflation During Turbulent and Tranquil Times

In: Expectations

Author

Listed:
  • Alex Cukierman

    (Tel-Aviv University)

  • Thomas Lustenberger

    (University of Basel
    Swiss Financial Market Supervisory Authority FINMA)

  • Allan Meltzer

    (Carnegie-Mellon University)

Abstract

Even when all past and present information is known, individuals usually remain uncertain about the permanence of observed variables. After reviewing the history and role of adaptive expectations and its statistical foundations in modeling this permanent-transitory confusion, the paper investigates the consequences of this confusion for tests of market efficiency in the treasury bill and foreign exchange markets. A central result is that the detection of serial correlation in efficiency tests based on finite samples does not necessarily imply that markets are inefficient. The second part of the paper utilizes data on Israeli inflation expectations from the capital market to estimate the implicit speed of learning about changes in inflation and to examine the performance of adaptive expectations in tracking the evolution of those expectations during the 1985 shock stabilization as well as during the stable inflation targeting period.

Suggested Citation

  • Alex Cukierman & Thomas Lustenberger & Allan Meltzer, 2020. "The Permanent-Transitory Confusion: Implications for Tests of Market Efficiency and for Expected Inflation During Turbulent and Tranquil Times," Springer Studies in the History of Economic Thought, in: Arie Arnon & Warren Young & Karine van der Beek (ed.), Expectations, pages 215-238, Springer.
    • Handle: RePEc:spr:spshcp:978-3-030-41357-6_12
    DOI: 10.1007/978-3-030-41357-6_12
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:spshcp:978-3-030-41357-6_12. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.