Market Analysis with Rational Expectations: Theory and Estimation.
Abstract
Dynamic market analyses can be classified on the basis of their treatment of expected prices. The first, and until recently the accepted, approach has been to specify directly a process by which agents are supposed to form expectations. An alternative which has attracted increasing attention is to take expectations as the conditional expected values implied by the specification of the market process. The compare these approaches let's consider a market for which the government announces a sizable and previously unanticipated purchase to be made in the next period. Structural equations for such a market can be developed describing optimal behavior conditional on beliefs about future prices. These equations come from assumptions about technology and agent's objectives. Fixing these aspects of the market process the structural equations hold for arbitrary values of their arguments. Since some types of behavior depend on beliefs about future prices, at least storage and also production if a lag is involved, the complete model must specify how relevant beliefs about future prices are formed. (Author)
Document Details
- Document Type
- Technical Report
- Publication Date
- Apr 01, 1978
- Accession Number
- ADA054422
Entities
People
- Ralph Lavar Huntzinger
Organizations
- Center for Naval Analyses