are irrational expectations rational? David Demery Nigel W. Duck1 ...
are irrational expectations rational? David Demery Nigel W. Duck1 ...
are irrational expectations rational? David Demery Nigel W. Duck1 ...
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Are Ir<strong>rational</strong> Expectations Rational? 10Table 1Relative Accuracy of Alternative Forecasting MethodsPanel A σ 2 ε =1Model : x j,t = ε t +0.9ε t−1 + u j,t − 0.9u j,t−1σ 2 u 0.1 0.5 1 2 10ORES =1 1.43 1.76 1.81 1.76 1.43S =2 1.29 1.53 1.57 1.54 1.32S =5 1.16 1.32 1.35 1.34 1.21S =10 1.10 1.21 1.24 1.23 1.15Adaptiveµ =0.1 2.01 2.81 3.81 5.81 21.81µ =0.2 2.03 2.92 4.02 6.23 23.92µ =0.5 2.11 3.32 4.83 7.84 31.95µ =0.8 2.24 3.92 6.03 10.25 43.98µ =0.9 2.29 4.20 6.58 11.35 49.45µ = µ ∗ − − − − −Naïve 2.36 4.53 7.24 12.66 56.02Notes: Each cell shows the ratio of the variance of the forecast errors associatedwith that particular forecasting method to the variance of the RE forecastingerrors.from observing any published series on the history of {x t } .