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On the 'restricted cointegration test' as a test of the rational expectations hypothesis

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  • Artur C. B. Da Silva Lopes

Abstract

One of the main consequences of the 'cointegration revolution' on the domain of the direct tests of the rational expectations hypothesis (REH) was the substitution of the 'restricted cointegration test' (RCT) for the 'unbiasedness test'. However, the results of a Monte Carlo study show that a simple t -test can be much more powerful than the RCT. It is argued that the RCT is adequate to investigate the 'asymptotic rationality' but that it is not sufficient to assess the Muthian rationality of expectations. The discussion is empirically illustrated with the test of the REH for the Portuguese retail trade inflation expectations.

Suggested Citation

  • Artur C. B. Da Silva Lopes, 1998. "On the 'restricted cointegration test' as a test of the rational expectations hypothesis," Applied Economics, Taylor & Francis Journals, vol. 30(2), pages 269-278, February.
    • Handle: RePEc:taf:applec:v:30:y:1998:i:2:p:269-278
    DOI: 10.1080/000368498326065
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    Cited by:

    1. Goodwin, Paul, 2000. "Correct or combine? Mechanically integrating judgmental forecasts with statistical methods," International Journal of Forecasting, Elsevier, vol. 16(2), pages 261-275.
    2. Chin-Hong Puah & Shirly Siew-Ling Wong & Venus Khim-Sen Liew, 2013. "Testing rational expectations hypothesis in the manufacturing sector in Malaysia," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 14(2), pages 303-316, April.
    3. Goodwin, Paul & Lawton, Richard, 2003. "Debiasing forecasts: how useful is the unbiasedness test?," International Journal of Forecasting, Elsevier, vol. 19(3), pages 467-475.
    4. Mitchell, Karlyn & Pearce, Douglas K., 2007. "Professional forecasts of interest rates and exchange rates: Evidence from the Wall Street Journal's panel of economists," Journal of Macroeconomics, Elsevier, vol. 29(4), pages 840-854, December.

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