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On a numerical and graphical technique for evaluating some models involving rational expectations

Author

Listed:
  • Søren Johansen

    (University of Copenhagen and CREATES)

  • Anders Rygh Swensen

    (University of Oslo and Statistics Norway)

Abstract

Campbell and Shiller (1987) proposed a graphical technique for the present value model which consists of plotting the spread and theoretical spread as calculated from the cointegrated vector autoregressive model. We extend these techniques to a number of rational expectation models and give a general de¯nition of spread and theoretical spread. The main results are the asymptotic distributions of the variance ratio, noise ratio, and correlation between the estimated spread and theoretical spreads. We derive sup tests for the recursively calculated quantities. Finally we apply the methods to two previous studies by Campbell and Shiller (1987) and Engsted (2002).

Suggested Citation

  • Søren Johansen & Anders Rygh Swensen, 2009. "On a numerical and graphical technique for evaluating some models involving rational expectations," CREATES Research Papers 2009-19, Department of Economics and Business Economics, Aarhus University.
    • Handle: RePEc:aah:create:2009-19
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    File URL: https://repec.econ.au.dk/repec/creates/rp/09/rp09_19.pdf
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    References listed on IDEAS

    as
    1. Bénédicte Vidaillet & V. d'Estaintot & P. Abécassis, 2005. "Introduction," Post-Print hal-00287137, HAL.
    2. John Y. Campbell, Robert J. Shiller, 1988. "The Dividend-Price Ratio and Expectations of Future Dividends and Discount Factors," The Review of Financial Studies, Society for Financial Studies, vol. 1(3), pages 195-228.
    3. repec:bla:jecsur:v:16:y:2002:i:3:p:301-55 is not listed on IDEAS
    4. Johansen, Soren & Swensen, Anders Rygh, 1999. "Testing exact rational expectations in cointegrated vector autoregressive models," Journal of Econometrics, Elsevier, vol. 93(1), pages 73-91, November.
    5. Carriero, Andrea & Favero, Carlo A. & Kaminska, Iryna, 2006. "Financial factors, macroeconomic information and the Expectations Theory of the term structure of interest rates," Journal of Econometrics, Elsevier, vol. 131(1-2), pages 339-358.
    6. Campbell, John Y & Shiller, Robert J, 1987. "Cointegration and Tests of Present Value Models," Journal of Political Economy, University of Chicago Press, vol. 95(5), pages 1062-1088, October.
    7. Tom Engsted, 2002. "Measures of Fit for Rational Expectations Models," Journal of Economic Surveys, Wiley Blackwell, vol. 16(3), pages 301-355, July.
    8. Kurmann, Andre, 2005. "Quantifying the uncertainty about the fit of a new Keynesian pricing model," Journal of Monetary Economics, Elsevier, vol. 52(6), pages 1119-1134, September.
    9. Johansen, Soren, 1995. "Identifying restrictions of linear equations with applications to simultaneous equations and cointegration," Journal of Econometrics, Elsevier, vol. 69(1), pages 111-132, September.
    10. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501.
    11. Søren Johansen & Anders Rygh Swensen, 2004. "More on testing exact rational expectations in cointegrated vector autoregressive models: Restricted constant and linear term," Econometrics Journal, Royal Economic Society, vol. 7(2), pages 389-397, December.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    VAR models; cointegration; rational expectations;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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