Information Rigidity and the Expectations Formation Process: A Simple Framework and New Facts

December 20, 2012

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Format: Chicago

Olivier Coibion, and Yuriy Gorodnichenko. Information Rigidity and the Expectations Formation Process: A Simple Framework and New Facts, (USA: International Monetary Fund, 2012) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

We propose a new approach to test the full-information rational expectations hypothesis which can identify whether rejections of the arise from information rigidities. This approach quantifies the economic significance of departures from the and the underlying degree of information rigidity. Applying this approach to U.S. and international data of professional forecasters and other agents yields pervasive evidence consistent with the presence of information rigidities. These results therefore provide a set of stylized facts which can be used to calibrate imperfect information models. Finally, we document evidence of state-dependence in the expectations formation process.

Subject: Economic forecasting, Economic theory, Industrial production, Inflation, Oil prices, Prices, Production, Rational expectations

Keywords: Expectations, Forecast error, Growth rate, Industrial production, Inflation, Information friction, Information rigidity, Noisy-information model, Numbers, Oil prices, Rational expectations, Real GDP, Standard deviation, Survey Forecasts, WP

Publication Details

Pages:

55
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2012/296
Stock No:

WPIEA2012296
ISBN:

9781475519242
ISSN:

1018-5941

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