ARE MONEY ANNOUNCEMENT FORECASTS RATIONAL?

The Money Market Survey (MMS) data are tested for the rational expectations hypothesis (REH) for a data set from 1977-1992. The analysis takes into account the time series properties of the data. The results indicate that the MMS forecasts are not rational. Several methods that have been suggested f...

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Bibliographic Details
Published in:Oxford bulletin of economics and statistics 1994-11, Vol.56 (4), p.475-483
Main Author: Liu, Peter C.
Format: Article
Language:English
Subjects:
Economic forecasts
Forecasting techniques
Forecasts
Issue of money
Monetary models
Monetary research
Monetary theory
Statistical analysis
Studies
Time series
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Summary:The Money Market Survey (MMS) data are tested for the rational expectations hypothesis (REH) for a data set from 1977-1992. The analysis takes into account the time series properties of the data. The results indicate that the MMS forecasts are not rational. Several methods that have been suggested for improving the forecasts are tested. The results show that none of the suggested adjustments make the survey forecasts consistent with the REH. The only forecast formulation that cannot reject the REH is the fitted value from the autoregression of the money announcement on its own lags when a large number of lags are included in the regression. The actual money announcements are obtained from the Federal Reserve Board's H-6 report, which shows preliminary estimates of the average money supply for the week ending 8 or 9 days prior to the day of the announcement.
ISSN:0305-9049
1468-0084
DOI:10.1111/j.1468-0084.1994.tb00021.x