Measurement Errors and Tests for Rationality

  title={Measurement Errors and Tests for Rationality},
  author={Jinook Jeong and G. Maddala},
  journal={Journal of Business & Economic Statistics},
  • Jinook Jeong, G. Maddala
  • Published 1991
  • Economics
  • Journal of Business & Economic Statistics
  • The traditional tests for rationality, the regression and volatility tests, have often rejected the hypothesis of rationality for survey data on expectations. It has been argued that these tests are not valid in the presence of unit roots and hence cointegration tests should be applied. The cointegration tests have often failed to reject the hypothesis of rationality. The present article argues that errors in variables affect tests of rationality. We use multiple sources of expectations to… CONTINUE READING
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