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Rational Expectations in Price Setting. Tests Based on Norwegian Export Prices

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This paper uses imperfect competition as a basis for modelling the export price for an aggregated commodity produced by the Norwegian private mainland economy. The long run solution is analysed using a cointegration technique. The dynamics are modelled according to two different approaches; a backward looking error correction model and a forward looking model where rational expectations are assumed. The dynamic structure of the forward looking model is derived from a linear quadratic adjustment cost function under rational expectations, but the empirical results do not support this specification. We cannot reject super-exogeneity to be present in the backward looking error correction model. The empirical evidence are thus not consistent with rational expectations.

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  • Ingvild Svendsen, 1998. "Rational Expectations in Price Setting. Tests Based on Norwegian Export Prices," Discussion Papers 226, Statistics Norway, Research Department.
    • Handle: RePEc:ssb:dispap:226
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    More about this item

    Keywords

    Export price; Imperfect competition; LQAC models; ECM; Cointegration; Rational expectation; Super exogeneity;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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