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Comparing Expectations and Outcomes: Application to UK Data

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  • Yu, Ge

Abstract

The validity of the rational expectations hypothesis is explored using 12 years direct individual expectations data derived from the BHPS. The usage of micro data drives off the possibility of spurious rejections caused by the existence of micro-heterogeneity. And the 12 years BHPS micro panel data can release the average-out problem in a comparatively short term micro panel data. In short, I test if the individual expectations are unbiased and efficient in a comparatively long term in this paper. As a result, expectations errors are found to be biased and inefficient. Furthermore, the hypothesis that expectations errors are random is investigated by exploring the existence of systematic components in expectations errors. There exists the micro-heterogeneity among different types of respondents. Also, the factors that significantly affect individual’s expectations are identified.

Suggested Citation

  • Yu, Ge, 2003. "Comparing Expectations and Outcomes: Application to UK Data," MPRA Paper 502, University Library of Munich, Germany, revised 2005.
    • Handle: RePEc:pra:mprapa:502
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    References listed on IDEAS

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    More about this item

    Keywords

    rational expectations; systematic heterogeneity; forecast errors; rational expectations hypothesis; subjective;
    All these keywords.

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications

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