The Efficient Estimation of Econometric Models with Rational Expectations

Michael R. Wickens

255 citations0/0 files storedThe Review of Economic Studies

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Economic theories and models Monetary Policy and Economic Impact Statistical and numerical algorithms

Abstract

The efficient estimation of econometric models with rational expectations by the substitution method usually entails the use of a non-linear simultaneous equations estimator and hence is not very attractive computationally. It is shown that for a wide class of problems efficient estimates can also be obtained with standard estimation methods if instead an errors in variables approach is used. For many other problems, although not providing fully efficient estimates because rationality is not imposed, the errors in variables method will still have a strong appeal because otherwise it uses all of the structural information in the model; unlike the substitution method, when an incomplete information set is used, it guarantees consistent estimates; and it is easy to compute.

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References

1961Rational Expectations and the Theory of Price Movements 1979Estimation and Control of a Macroeconomic Model with Rational Expectations 1976A Classical Macroeconometric Model for the United States 1973Rational Expectations, the Real Rate of Interest, and the Natural Rate of Unemployment 1973Rational Expectations and the Dynamics of Hyperinflation 1976Rational Expectations and the Natural Rate Hypothesis: Some Consistent Estimates 1980Econometric Implications of the Rational Expectations Hypothesis 1978Rational expectations and the dynamic structure of macroeconomic models

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