Testing Exact Rational Expectations in Cointegrated Vector Autoregressive Models
Title: Testing Exact Rational Expectations in Cointegrated Vector Autoregressive Models
Citation: Journal of Econometrics, 1999, 93, 1, 73-91
This paper considers the testing of restrictions implied by rational expectations hypotheses in a cointegrated vector autoregressive model for I(1) variables. If the rational expectations involve one-step-ahead observations only and the coefficients are known, an explicit parameterization of the restrictions is found, and the maximum-likelihood estimator is derived by regression and reduced rank regression. An application is given to a present value model.
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