are irrational expectations rational? David Demery Nigel W. Duck1 ...

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Are Ir<strong>rational</strong> Expectations Rational? 11Table 2Relative Accuracy of Alternative Forecasting MethodsPanel A σ 2 ε =1Model : x j,t = ε t +0.9ε t−1 + u j,t − 0.1u j,t−1σ 2 u 0.1 0.5 1 2 10ORES =1 1.18 1.30 1.29 1.23 1.08S =2 1.12 1.22 1.22 1.19 1.08S =5 1.06 1.14 1.15 1.13 1.06S =10 1.04 1.09 1.10 1.10 1.05Adaptiveµ =0.1 1.92 2.35 2.88 3.96 12.55µ =0.2 1.93 2.38 2.96 4.10 13.26µ =0.5 1.95 2.52 3.23 4.64 15.95µ =0.8 2.00 2.72 3.63 5.45 19.98µ =0.9 2.02 2.82 3.82 5.82 21.82µ = µ ∗ − − − − −Naïve 2.04 2.93 4.04 6.26 24.02See notes to table 1
Are Ir<strong>rational</strong> Expectations Rational? 12Table 3Relative Accuracy of Alternative Forecasting MethodsPanel A σ 2 ε =1Model : x j,t = ε t +0.6ε t−1 +0.27ε t−2 + u j,t − 0.6u j,t−1 +0.27u j,t−2σ 2 u 0.1 0.5 1 2 10ORES =1 1.15 1.35 1.38 1.35 1.15S =2 1.08 1.22 1.26 1.25 1.13S =5 1.03 1.11 1.14 1.15 1.09S =10 1.02 1.06 1.08 1.09 1.07Adaptiveµ =0.1 1.56 2.18 2.97 4.53 17.03µ =0.2 1.55 2.23 3.09 4.80 18.51µ =0.5 1.55 2.48 3.64 5.97 24.60µ =0.8 1.63 2.97 4.63 7.96 34.62µ =0.9 1.69 3.22 5.12 8.93 39.39µ = µ ∗ 1.54 2.11 2.60 3.44 9.49Naïve 1.78 3.54 5.73 10.12 45.24See notes to table 1
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are irrational expectations rational? David Demery Nigel W. Duck1 ...

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