the phillips curve macroeconomic policy and the welfare of canadians a review of the two competing paradigms explaining inflation and unemployment fluctuations singles out the keynesian phillips curve as the clear empirical winner over its classic competitors reestimation of the canadian phillips curve for 1957 90 identifies a sharp structural shift toward a high degree of unemployment hysteresis after 1972 the recent attempt of macropolicy to flatten the aggregate demand curve and limit supply side shock accommodation which aims at lower and more stable inflation is then shown to make unemployment higher and more unstable on average to an extent that is an increasing function of the degree of hysteresis understanding and reducing hysteresis and developing a consensus based incomes policy that has a chance of alleviating the dismal trade off should therefore to top research and policy priorities

analysts interim earnings forecasts evidence on the forecasting process existing empirical evidence indicates that analyst forecasts of corporate earnings do not meet the strict rationality standards prescribed by econometric tests of the rational expectations hypothesis 1 in this paper we address the question of whether the expectation formation process underlying analyst forecasts is adaptive or whether these forecasts are influenced by noninformational factors such as incentives arising from the market for their forecasts o brien 1988 lin and mcnichols 1993 francis and philbrick 1993 and dugar and nathan 1992 and interaction between judgmental and or statistical forecasting methods bunn and wright 1991 fan 1990 and hoerl and kennard 1970 the rejection of rational expectations gives rise to two views of the forecasting process of analysts the first based on an informational argument is that the forecasting process is adaptive marcet and sargent

models of inflation expectations formation a comparison of household and economist forecasts the recent appreciation of the critical role played by expectations of inflation in the behavior of macromodels has stimulated empirical studies of the formation of expectations by different groups time series survey data on expectations of inflation exist now for economists households and businesses these data have been used as independent variables in explaining wage behavior gordon 16 turnovsky and wachter 34 and de menil and bhatta 5 prices turnovsky and wachter 34 and wachtel 36 interest rates gibson 14 hendershott and van horne 19 pearce 30 and mishkin 27 and consumption wachtel 36 generally with a significant improvement in explanatory power they have also been used as dependent variables in attempts to determine how expectations are formed by gordon 15 mullineaux 28 jacobs and jones 20 and figlewski and wachtel 9 for the economist survey van duyne 35 for the household survey and leonard 23 and de leeuw and mckelvey 4 for businesses given their different levels of knowlege of economics and perspectives one might expect that the models used by the different groups to forecast inflation would

moral hazard and private monitoring we clarify the role of mixed strategies and public randomization sunspots in sustaining near efficient outcomes in repeated games with private monitoring we study a finitely repeated game where the stage game has multiple equilibria and show that mixed strategies can support partial cooperation but cannot approximate full cooperation even if monitoring is almost perfect efficiency requires extensive form correlation where strategies can condition upon a sunspot at the end of each period for any finite number of repetitions we approximate the best equilibrium payoff under perfect monitoring assuming that monitoring is sufficiently accurate and sunspots are available journal of economic literature classification numbers c73 d82

credit risk measurement developments over the last 20 years abstract this paper traces developments in the credit risk measurement literature over the last 20 years the paper is essentially divided into two parts in the first part the evolution of the literature on the credit risk measurement of individual loans and portfolios of loans is traced by way of reference to articles appearing in relevant issues of the journal of banking and finance and other publications in the second part a new approach built around a mortality risk framework to measuring the risk and returns on loans and bonds is presented this model is shown to offer some promise in analyzing the risk return structures of portfolios of credit risk exposed debt instruments

macroeconomic forecasts and microeconomic forecasters in the presence of principal agent problems published macroeconomic forecasts by professional economists may not measure expectations forecasters may use their forecasts in order to manipulate beliefs about their ability i test a cross sectional implication of models of reputation and information revelation i find that as forecasters become older and more established they produce more radical forecasts since these more radical forecasts are in general less accurate ex post forecast accuracy grows significantly worse as forecasters become older and more established these findings are consistent with reputational factors at work in professional macroeconomic forecasts

communication in repeated games with private monitoring abstract the paper considers repeated games where each player can be observed by only a subset of the other players and where players can make public announcements about the behavior of the players they observed we address the following question what is the minimal level of observability that is required to obtain efficient outcomes the main result is that the limit set of sequential equilibrium payoffs when the discount factor tends to one contains the set of individual rational payoffs whenever each player is observed by at leasttwoother players journal of economic literatureclassification number c73

inflation expectations in turkey learning to be rational turkey implemented an ambitious restructuring of the economy in the past several years including the adoption of inflation targeting along with a floating exchange rate regime inflation came down from almost triple digits to single digits between 2001 and 2005 this particular episode of the turkish economy sets a genuine case study for investigating the possible changes in the behaviour of inflation expectations upon a regime shift accordingly this study analyses inflation expectations in turkey focusing especially on the post 2001 transition phase we first conduct classical tests of unbiasedness and efficiency using aggregate survey data between august 2001 and october 2007 to get a statistical benchmark for rationality we find that classical tests reject full rationality hypothesis for all series except next month s consumer price index cpi inflation expectations then we carry out time varying parameter tvp estimates based on a kalman filter to see how the coefficients in the classical tes

inflation forecast errors and time variation in term premia the expectations theory of the term strueture is well known to give wrong signals as to the future course of long term interest rates one explanation involves rational time varying term premia however the anomaly may also be due to inflation forecast errors we study survey forecasts of inflation it seems that the respondents forecasts are insufficiently adaptive interest rates reflect expectations similar to the inflation forecasts as a result past survey forecast errors reliably predict premia on u s government bonds

wage expectations in the labor market survey evidence on rationality using a new set of directly observed wage expectations among firms this paper finds that in general firms forecasts fail the unbiasedness and efficiency requirements of weak form rational expectations these market participants consistently underestimate the wages they actually end up paying and their expectations do not efficiently utilize the information in past realizations the mean absolute forecast error of two percent compares with an error of only five percent if static expectations were held the major source of wage fore cast error seems to be errors in predicting demand rather than in predicting supply or the general price level wage forecast errors are positively correlated across fields with distinct supply patterns and are positively correlated with quantity forecast error the properties of stochastically weighted expectations and the effectiveness of the wage and price controls of the early 1970 s are also discussed this abstract was borrowed from another version of this item

bettor handicapping and market efficiency in greyhound parimutuel gambling this paper evaluates the speculative efficiency of the parimutuel gambling market for greyhound racing the efficiency tests consider the informational content of bettor handicapping data as well as the forecasts of professional handicappers and the aggregate market previous studies have failed to consider the wide range of performance data that are available for bettor handicapping activities two tests of efficiency are considered the first test evaluates the in sample explanatory power of the handicapper s forecasts and handicapping data relative to the aggregate market s forecasts as indicated by the final odds the second test compares simulated rates of return to hypothetical gambling obtained from ex ante finish forecasts to the efficient rates of return that are dictated by the track s commission significant speculative inefficiencies are revealed the second test suggests the existence of above normal returns to gambling from using conditional forecasts generated from bettor handicapping data

nominal interest rates as indicators of inflation expectations forward interest rates have become popular indicators of inflation expectations theusefulness of this indicator depends on the relative volatilty and the correlation of inflation expectations and expected real interest rates this paper studies u s and u k data using a range of different tools and data sets the forward rate rule perfoms reasonably well in spite of significant movements in the expected real interest rate the reason is that the noise that movements in the expected real interest rate add to the inflation expectations is balanced by a tendency for expected real interest rates and inflation expectations to move in opposite directions

bias in federal reserve inflation forecasts is the federal reserve irrational or just cautious abstract inflation forecasts of the federal reserve seem to have systematically under predicted inflation from the fourth quarter of 1968 until volcker s appointment as chairman and to systematically over predict it afterwards until the second quarter of 1998 furthermore under quadratic loss commercial forecasts seem to have information not contained in those forecasts to investigate the cause of this apparent irrationality this paper recovers the loss function implied by federal reserve s inflation forecasts the results suggest that the cost of having inflation above an implicit time varying target was larger than the cost of having inflation below it for the period since volcker and that the opposite was true for the pre volcker era once these asymmetries are taken into account the federal reserve s inflation forecasts are found to be rational

a note on the use of industry relative ratios in bankruptcy prediction abstract the potential for industry relative financial ratios to improve the prediction of firms in financial distress motivated this comparison of model specifications based on either unadjusted or industry relative ratios both specifications yielded stable parameter estimates over the time periods examined however the industry relative specification appeared to add incremental information not contained in the model based on the unadjusted financial ratios the converse case did not hold in addition with the industry relative specification ex post forecast accuracy was slightly improved relative to the ex ante forecast while with the unadjusted model specification ex post forecast accuracy declined from that obtained ex ante

using survey data to test standard propositions regarding exchange rate expectations survey data provide a measure of exchange rate expectations superior to the forward rate in that no risk premium interferes we estimate extrapolative adaptive and regressive models of expectations static or random walk expectations and bandwagon expectations are rejected current appreciation generates the expectation of future depreciation because variables other than the contemporaneous spot rate receive weight in comparing expectations to the process governing the spot rate we find statistically significant bias no variable is as ubiquitous in international financial theory and yet as elusive empirically as investors expectations regarding exchange rates in the past expectations have been modeled in an ad hoc way often by using the forward exchange rate there is however a serious problem with using the forward discount as the measure of the expected change in the exchange rate in that the two may not be equal the gap that may separate the forward discount and expected depreciation is generally interpreted as a risk premium most of the large empirical literature testing the unbiasedness of the forward exchange rate for example has found it necessary either arbitrarily to assume away the existence of the risk premium if the aim

contracting with repeated moral hazard and private evaluations a repeated moral hazard setting in which the principal privately observes the agent s output is studied the optimal contract for a finite horizon is characterized and shown to require burning of resources these are only burnt after the worst possible realization sequence and the amount is independent of both the length of the horizon and the discount factor for the infinite horizon it is shown that there is no loss from restricting the analysis to contracts in which the agent receives a constant efficiency wage and no feedback until he is fired furthermore optimal contracts cannot be replicated by short term contracts a family of fixed interval review contracts is characterized longer review intervals are preferable but harder to implement comparative statics on the review length are carried out finally these contracts are shown approximate first best if players are very patient jel d82 d86

a belief based approach to the repeated prisoners dilemma with asymmetric private monitoring abstract this paper extends the belief based approach to the repeated prisoners dilemma with asymmetric private monitoring we first find that the previous belief based techniques t sekiguchi efficiency in repeated prisoners dilemma with private monitoring j econ theory 76 1997 345 361 v bhaskar i obara belief based equilibria in the repeated prisoners dilemma with private monitoring j econ theory 102 2002 40 69 cannot succeed when players private monitoring technologies are sufficiently different we then modify the previous belief based approach by letting the player with smaller observation errors always randomize between cooperate and defect along the cooperative path of the play we show that with vanishing observation errors efficiency and a folk theorem can be approximated using our modified belief based strategies

on failing to cooperate when monitoring is private abstract i consider a repeated prisoners dilemma where in each period each player receives an imperfect private signal about his opponent s current action i show that when players are patient enough any equilibrium where players use trigger strategies i e do not revert to cooperation once they have started defecting yields players a value arbitrarily close to the mutual minimax i also examine the robustness of the result to perturbations of the game journal of economic literature classification numbers c72

an analysis of a panel of spanish gdp forecasts this article undertakes an analysis of the forecasts included in the panel of spanish forecasts in order to highlight the fact that the predictions made and the errors committed by the entities participating on this panel contain information that is particularly useful in analysing the evolution of the spanish economy here a study is undertaken of the gdp growth forecasts for the spanish economy for the period 2000 to 2002 made in distinct forecast time horizons specifically it analyses whether the forecasts are optimistic or pessimistic and whether new information concerning the variable being predicted is used efficiently in revising earlier forecasts

communication in repeated games with imperfect private monitoring this paper examines repeated games in which each player observes a private and imperfect signal on the actions played and in which players are allowed to communicate using public messages providing incentives for players to reveal their observations generates revelation constraints that combined with signal imperfections may be a source of inefficiencies however by delaying the revelation of their observations players may economize on the cost of deterring deviations and thereby avoid these inefficiencies because a player would not want to trigger a sanction that would penalize him too revelation constraints also tend to make sanctions difficult to enforce however with at least three players detecting deviations may not require that all the players reveal their observations in that case we obtain a nash threat version of the folk theorem with two players we do not obtain a similar result nevertheless we show that an efficient outcome can almost always be approximated

inattentive professional forecasters abstract using the ecb survey of professional forecasters to characterize expectations at the micro level we emphasize two new facts forecasters i fail to systematically update their forecasts and ii disagree even when updating it is moreover found that forecasters have predictable forecast errors these facts are qualitatively supportive of recent models of inattention and suggest a setup where agents imperfectly process information due to both sticky information a la mankiw reis and noisy information a la sims however building and estimating such an expectation model we find that it cannot quantitatively replicate the error and disagreement observed in the data

efficiency of the market for racetrack betting many racetrack bettors have systems since the track is a market similar in many ways to the stock market one would expect that the basic strategies would be either fundamental or technical in nature fundamental strategies utilize past data available from racing forms special sources etc to handicap races the investor then wagers on one or more horses whose probability of winning exceeds that determined by the odds by an amount sufficient to overcome the track take technical systems require less information and only utilize current betting data they attempt to find inefficiencies in the market and bet on such overlays when they have positive expected value previous studies and our data confirm that for win bets these inefficiencies which exist for underbet favorites and overbet longshots are not sufficiently great to result in positive profits this paper describes a technical system for place and show betting for which it appears to be possible to make substantial positive profits and thus to demonstrate market inefficiency in a weak form sense estimated theoretical probabilities of all possible finishes are compared with the actual amounts bet to determine profitable betting situations since the amount bet influences the odds and theory suggests that to maximize long run growth a logarithmic utility function is appropriate the resulting model is a nonlinear program side calculations generally reduce the number of possible bets in any one race to three or less hence the actual optimization is quite simple the system was tested on data from santa anita and exhibition park using exact and approximate solutions that make the system operational at the track given the limited time available for placing bets and found to produce substantial positive profits a model is developed to demonstrate that the profits are not due to chance but rather to proper identification of market inefficiencies

an estimation of the hazard rate of firms under chapter 11 protection the instantaneous probability hazard rate of a firm s exit from chapter 11 protection is examined using the weibull duration model the effect of various regressors and the effect of the time a firm spends under chapter 11 protection on this instantaneous probability is analyzed i show that the hazard increases significantly under chapter 11 among the variables chosen the interest burden of the firm and the capacity utilization of the firm s industry significantly increase the hazard other firm specific variables like the long term debt to assets ratio and the number of shares outstanding and economy wide variables like the prime interest rate and the gross national product growth rate have no significant effect on the hazard copyright 1994 by mit press

do professional forecasters trust in taylor type rules evidence from the wall street journal poll this article uses the monthly wall street journal poll between 2002 and 2010 to analyse whether professional economic forecasters believe in and thus apply taylor type rules for their own forecasts using their forecasts for the federal funds rate the inflation rate and capacity utilization we estimate whether these are internally consistent with the message of taylor type rules we find that the expectation formation can indeed be described by taylor type rules

efficiency and formation of expectations evidence from the european investment survey the european commission conducts an annual survey regarding planned and realized business fixed investment across various manufacturing sectors in euroland in this study we investigate the predictive content of survey based expectations on investment in addition we empirically test the rationality of respondents both in a time series as well as in a panel context according to our results based on pooling the data efficiency is rejected since expectations are biased predictors of actual outcomes furthermore expectations revisions are found to be correlated with components of the information set known at the time of decision making finally our results qualify regressive expectations as the mechanism that more adequately describes the formation of expectations

vested interest and biased price estimates evidence from an auction market this study employs a new data set from art auctions to examine the relationship between auctioneer presale price estimates and the long term performance of artworks we find that the price estimates for expensive paintings have a consistent upward bias over a long period of 30 years high estimates at the time of purchase are associated with adverse subsequent abnormal returns moreover the estimation error for individual paintings tends to persist over time these results are consistent with the view that auction house price estimates are affected by agency problems and that

testing the rationality of price forecasts new evidence from panel data this paper tests the rationality of individual price forecasts in a panel of professional forecasters here unlike in most previous studies rationality is not rejected the results here differ because 1 using individual forecasts avoids aggregation bias 2 comparison of forecasts to initial data avoids bias due to data revision 3 the professional forecasters have economic incentives to state their expectations accurately and 4 a new covariance matrix estimator consistent when forecast errors are correlated across individuals is used copyright 1990 by american economic association

introduction to repeated games with private monitoring abstract we present a brief overview of recent developments in discounted repeated games with imperfect private monitoring the literature explores the possibility of cooperation in a long term relationship where each agent receives imperfect private information about the opponents actions although this class of games admits a wide range of applications such as collusion under secret price cutting exchange of goods with uncertain quality and observation errors it has fairly complex mathematical structure due to the lack of common information shared by players this is in sharp contrast to the well explored case of repeated games under public information with the celebrated folk theorems and until recently little had been known about the private monitoring case however rapid developments in the past few years have revealed the possibility of cooperation under private monitoring for some class of games journal of economic literature classification numbers c72 c73 d43 d82 l13 l41

imperfect information and wage inertia in the business cycle a comment in a recent article gertler 1982 presents a model that explains certain stylized facts concerning the relative behavior of the money supply and nominal wages one additional feature of the model is the behavior of real output which is found to have a serially correlated response to a money supply shock this serial correlation appears to arise from an information structure that precludes agents from directly disentangling permanent versus transitory movements in relevant state variables this information structure complicates the forecasting problem that must be solved to analyze the model and affects the behavior of wages and the variance of output it will not however lead to serial correlation in real output an algebraic error is responsible for the serial correlation found by gertler this note corrects the error and presents an alternative solution to the forecasting problem gertler constructs forecasts of the relevant state variable through the use of a kalman filter while this technique is appropriate for the problem a simpler solution is available this solution is based on an equivalent representation of the stochastic process generating the disturbances of the model this equivalent representation can then be used in a straightforward way to describe wage dynamics and the variance of real output it is sufficient to analyze gertler s model in the case where there are only monetary disturbances the relevant equations are

are statistical reporting agencies getting it right data rationality and business cycle asymmetry this article provides new evidence on the rationality of early releases of industrial production ip and producer price index ppi data rather than following the usual practice of examining only first available and fully revised data we examine the entire revision history for each variable thus we are able to assess for example whether earlier releases of data are in any sense less rational than later releases and when data become rational our findings suggest that seasonally unadjusted ip and ppi become rational after approximately 3 4 months whereas seasonally adjusted versions of these series remain irrational for at least 6 12 months after initial release for all variables examined we find evidence that the remaining revision is predictable from its own past or from publicly available information in other economic and financial variables in addition we find a clear increase in the volatility of revisions during recessions suggesting that early data releases are less reliable in toughe

forecast uncertainty ex ante and ex post u s inflation and output growth survey respondents who make point predictions and histogram forecasts of macro variables reveal both how uncertain they believe the future to be ex ante as well as their ex post performance macroeconomic forecasters tend to be overconfident at horizons of a year or more but overestimate i e are underconfident regarding the uncertainty surrounding their predictions at short horizons ex ante uncertainty remains at a high level compared to the ex post measure as the forecast horizon shortens there is little evidence of a link between individuals ex post forecast accuracy and their ex ante subjective assessments

on the rationality of us macroeconomic forecasts evidence from a panel of professional forecasters asa nber survey data is used to check the rationality of us macroeconomic forecasts it is found that of 75 forecast series examined 51 are biased 25 are both unbiased and efficient and only two pass the null hypothesis of orthogonality this calls into question the validity of rational expectations hypothesis

an example of a repeated partnership game with discounting and with uniformly inefficient equilibria in this note we present an example of a repeated partnership game with imperfect monitoring in which all supergame equilibria with positive discount rates are bounded away from full efficiency uniformly in the discount rate provided the latter is strictly positive on the other hand if the players do not discount the future then every efficient one period payoff vector that dominates the one period equilibrium payoff vector can be attained by an equilibrium of the repeated game thus the correspondence that maps the players discount rate into the corresponding set of repeated game equilibrium payoff vectors is discontinuous at the point at which the discount rate is zero

random effects logistic regression model for default prediction of technology credit guarantee fund korean government has been funding the small and medium enterprises sme with superior technology based on scorecard however high default rate of funded smes has been reported in order to effectively manage such governmental fund it is important to develop accurate scoring model for smes in this paper we provide a random effects logistic regression model to predict the default of funded smes based on both financial and non financial factors advantage of such a random effects model lies in the ability of accommodating not only the individual characteristics of each sme but also the uncertainty that cannot be explained by such individual factors it is expected that our study can contribute to effective management of government funds by proposing the prediction models for defaults of funded smes

tests of equilibrium macroeconomics using contemporaneous monetary data abstract this paper uses contemporaneous monetary data to carry out econometric tests of the equilibrium approach to modelling the relation between monetary disturbances and macroeconomic fluctuations the theoretical analysis introduces into an equilibrium macroeconomic model the availability of preliminary data on current monetary aggregates and the process of accumulation of revised monetary data the econometric analysis tests two hypothesis derived from this extended model one hypothesis concerns the neutrality of perceived monetary policy the econometric results imply rejection of this hypothesis the other hypothesis concerns the non neutrality of errors in preliminary monetary data the econometric results fail to reject the contrary of this hypothesis these tests provide strong evidence against the reality of the equilibrium approach

firm performance and macro forecast accuracy abstract combining a unique survey of japanese firms gdp forecasts with accounting data for 25 years we find three main results first firms gdp forecasts are associated with their employment investment and output growth in the subsequent year second over optimistic and pessimistic forecast errors predict lower profitability and productivity consistent with our model of input choice under uncertainty third larger and more cyclical firms make forecasts closer to professionals presumably reflecting their higher return to accuracy forecasts by more productive and older firms are also more similar to professional forecasts implying forecasting ability is linked to management ability and experience

asymmetry complementarities and state dependence in federal reserve forecasts forecasts are a central component of policymaking the federal reserve s forecasts are published in a document called the greenbook previous studies of the greenbook s inflation forecasts have found them to be rationalizable but asymmetric if considering particular subperiods for example before and after the volcker appointment in these papers forecasts are analyzed in isolation assuming policymakers value them independently we analyze the greenbook forecasts in a framework in which the forecast errors for different variables are allowed to interact we find that allowing the losses to interact makes the unemployment forecasts virtually symmetric the output forecasts symmetric prior to the volcker appointment and the inflation forecasts symmetric after the onset of the great moderation

testing effeciency in gambling markets a comment in a recent article in this journal even and noble point out that the regression based test for unbiasedness in point spread betting markets is not valid test when the mean and median of the market s forecast errors are different in the case where skewness is present even and noble propose a likelihood ratio statistic to test for market efficiency in this comment three concerns are explored i whether distributions of market forecast errors in these markets are consistently and significantly skewed ii whether the test proposed by even and noble suffers from the same problem of low power as do other statistical tests in these markets iii whether the even and noble test statistic is actually a new test or simply the equivalent of very simple well known statistical test

the structure of expectations of the weekly money supply announcement abstract this paper examines the structure of expectations of the weekly money supply announcement in the late 1970s the data used are from a weekly telephone survey of money market participants the rationality and structure of expectations are explored with the data organized in three ways the mean response to each weekly survey the pooled sample of individual responses and time series of responses by each individual in the survey the effect of data aggregation on rationality tests is investigated the structure of the expectations data are also examined and it is found that both strong regressive influences and adaptive learning characterize the data

is bank supervision central to central banking whether central banks should play an active role in bank supervision and regulation is being debated both in the united states and abroad while the bank of england has recently been stripped of its supervisory responsibilities and several proposals in the united states have advocated removing bank supervision from the federal reserve system other countries are considering enhancing central bank involvement in this area many of the arguments for and against these proposals hinge on the effect this change would have on the ability of the central bank to conduct monetary policy we find that confidential supervisory information on bank ratings significantly improves

the rationality of usda forecasts under multivariate asymmetric loss a large number of previous studies suggest that many usda forecasts are biased and or inefficient these findings however may be the result of the assumed loss function of usda forecasters we test the rationality of the usda net cash income forecasts and the wasde production and price forecasts between 1988 and 2018 using a flexible multivariate loss function that allows for asymmetric loss and non separable forecast errors our results provide robust evidence that usda forecasters are rational expected loss minimizers yet demonstrate a tendency to place a greater weight on under or overprediction as a result this study provides an alternate interpretation of previous findings of forecast irrationality

on sustaining cooperation without public observations abstract this paper examines a dynamic game in which each player only observes a private and imperfect signal on the actions played our main result is that in a repeated prisoner s dilemma where defections are irreversible at least for a long enough period of time patient enough players may achieve almost efficient outcomes dealing with models of imperfect private monitoring is difficult because i continuation games are games of incomplete information hence they do not have the same structure as the original game in particular continuation equilibria are correlated equilibria ii players are typically uncertain about their opponents past observations and actions and they use their entire own private history to learn about these actions as a result equilibrium strategies are in general nontrivial and increasingly complex functions of past observations we bypass these difficulties by looking at correlated equilibria of the original game and find correlated equilibria in which the decision problem faced by each player remains the same over time journal of economic literature classification numbers c72

what do economists know an empirical study of experts expectations for more than three decades economic columnist joseph a livingston has canvassed a panel of economists twice a year eliciting their six month and twelve month forecasts for more than a dozen key variables this study analyzes whether the experts predictions are unbiased and whether complete use was made of all relevant known information unbiasedness and completeness being necessary conditions for fully rational expectations little bias was found in either the half year or full year predictions but extensive underutilization of information particularly data on monetary growth occurred to prophecy is extremely difficult especially with respect to the future chinese proverb do economists expectations regarding key price and nonprice variables utilize all known relevant information in an unbiased efficient manner this is a worthy subject for research for several reasons properties of experts predictions likely form an upper bound for those of laymen further as john muth 14 has noted the character of dynamic processes is typically very sensitive to the way expectations are influenced by the actual course of events p 316 hence we need to know precisely how events do affect expectations finally the common practice of replacing a variable s generally unobserved expectation with a proxy based on its past values will be unbiased and will not cause bias in other

tests of the rational expectations hypothesis this paper reviews evidence on the structure of anticipation from a number of empirical studies jack muth s rational expectations hypothesis is compared with a variety of alternative models including ferber s law the implicit expectations model of edwin mills and muth s new errors in the variables model the cumulative evidence is of such strength as to compel the suspension of belief in the concept of rational expectations this implies that it is a mistake to proceed under the maintained hypothesis that expectations are rational instead it is necessary to test the sensitivity of empirical and theoretical results to alternative assumptions about the structure by which anticipations are generated copyright 1986 by american economic association

efficiency in repeated prisoner s dilemma with private monitoring abstract this paper analyzes repeated games with private monitoring where in each period each player receives a signal of the other player s action in the previous period and that signal is private information previous literature on discounted repeated games with private monitoring has not shown whether or not nearly efficient equilibria exist for a repeated prisoner s dilemma satisfying a certain assumption regarding stage game payoffs we show that there exists a nearly efficient sequential equilibrium provided that imperfectness of signals is small and players are patient journal of economic literature classification number c73

frequency bias in consumers perceptions of inflation an experimental study we investigate whether the perception of economy wide inflation is affected by the frequency with which various goods prices are observed we provide novel experimental evidence that consumers perceptions of aggregate inflation are systematically biased toward the perceived inflation rates of the frequently purchased items this frequency bias may affect consumers consumption and investment decisions and thus have important macroeconomic consequences it may also explain why consumers typically over estimate inflation in surveys during periods where frequently purchased non durable goods are inflating faster than durables