Rational expectations in price setting. Tests based on Norwegian export prices
Working paper
Åpne
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http://hdl.handle.net/11250/180837Utgivelsesdato
1998Metadata
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- Discussion Papers [1002]
Sammendrag
This paper uses imperfect competition as a basis for modelling the export price for an aggregated commodity produced by the Norwegian private mainland economy. The long run solution is analysed using a cointegration technique. The dynamics are modelled according to two different approaches; a backward looking error correction model and a forward looking model where rational expectations are assumed. The dynamic structure of the forward looking model is derived from a linear quadratic adjustment cost function under rational expectations, but the empirical results do not support this specification. We cannot reject super-exogeneity to be present in the backward looking error correction model. The empirical evidence are thus not consistent with rational expectations.
Keywords: Export price, Imperfect competition, LQAC models, ECM, Cointegration, Rational expectation, Super exogeneity