Test of the Rational Expectations Hypothesis: Inflation, Interest Rate and Exchange Rate

Year 2013, Volume: 17 Issue: 1, 17 - 35, 01.06.2013

Zehra Abdioğlu Sinem Yılmaz

Abstract

The rationality of expectations mean to that economic agents do not make systematic errors in making their forecasts. The effects of monetary policy on output and employment depend on whether expectations are rational. Therefore, it is important to examine whether variables such as inflation rate, interest rate and exchange rate forecasts exhibit rationality. In this study, we examine to whether inflation rate, interest rate and exchange rate expectations are rational in Turkey for the period of 2005-2012 using unbiasedness, autocorrelation, efficiency, orthogonality and consistency analysis. According to results while inflation rate expectations are unbiased and inconsistency, exchange rate and interest rate expectation errors have autocorrelation. In addition, interest rate expectations are not orthogonal. Therefore, we find that inflation rate, exchange rate and interest rate expectations are not rational in Turkey for this period.

Keywords

Rational Expectations, Unbiasedness, Efficiency, Orthogonality, Consistency

Rasyonel Beklentiler Hipotezinin Testi: Enflasyon, Faiz ve Kur

Abstract

Beklentilerin rasyonel olması ekonomik birimlerin tahminlerinde sistematik hata yapmamaları anlamına gelmektedir. Para politikasının çıktı ve istihdam üzerindeki etkileri beklentilerin rasyonel olup olmamasına bağlıdır. Bu nedenle enflasyon oranı, faiz oranı ve döviz kuru gibi değişkenlerinin tahminlerinin rasyonel olup olmadığını araştırmak önem arz etmektedir. Bu çalışmada Türkiye’de enflasyon oranı, faiz oranı ve döviz kuru beklentilerinin rasyonel olup olmadığı 2005-2012 dönemi itibariyle yansızlık, otokorelasyon, etkinlik, ortogonallik ve tutarlılık analizleri kullanılarak incelenmiştir. Elde edilen sonuçlara göre enflasyon oranı beklentileri yanlı ve tutarsız iken döviz kuru ve faiz oranı beklenti hataları otokorelasyon içermektedir. Bunun yanı sıra faiz oranı beklentileri ortogonal değildir. Sonuç olarak enflasyon oranı, döviz kuru ve faiz oranı beklentilerinin Türkiye’de bu dönem için rasyonel olmadığı belirlenmiştir.

Keywords

Rasyonel Beklentiler, Yansızlık, Etkinlik, Ortogonallik, Tutarlılık

References

• Arora, H. K. ve Dutt, S. D. (2006), “Exchange Rate Expectation Formation Process: A Consistency Test” Applied Economics, 25(6): 845-851.
• Baillie, R. T., Lippens, R. E. ve McMahon, P. C. (1983), “Testing Rational Expecta- tions and Efficiency in the Foreign Exchange Market" Econometrica, 51(3): 553-563.
• Bakhshi, H., Kapetanios, G. ve Yates, A. (2005), “Rational Expectations and Fixed- Event Forecasts: An Application to UK Inflation” Empirical Economics, 30(3): 539-553.
• Barlas-Özer, Y. ve Mutluer, D. (2005), “Inflation Expectations in Turkey: Statistical Evidence from the Business Tendency Survey” Central Bank Review, 5(2): 73- 97.
• Beach, E. D., Fernandez-Cornej, J. ve Uri, N. D. (1995), “Testing the Rational Expecta- tion Hypothesis Using Survey Data from Vegetable Growers in the USA” Journal of Economic Studies, 22(6): 46-59.
• Bilgili, F. (2001), “The Unbiasedness and Efficiency Tests of the Rational Expectations Hypothesis” MPRA Paper, 24114: 1-21.
• Dabbs, R. E., Smith, K. L. ve Brocato, J. (1991), “Tests on the Rationality of Profes- sional Business Forecasters with Changing Forecast Horizons” Quarterly Jour- nal of Business and Economics, 30(2): 28-50.
• Dickey, D. ve Fuller, W. (1979), “Distribution of the Estimators for Autoregressive Time Series with a Unit Root” Journal of the American Statistical Association, 74: 427-431.
• Engle, R. F. ve Granger, C. W. J. (1987), “Co-integration and Error Correction: Repre- sentation, Estimation and Testing” Econometrica, 55 (2): 1251–1276.
• Foresells, M. ve Kenny, G. (2002), “The Rationality of Consumer’ Inflation Expecta- tions: Survey-Based Evidence for the EURO Area” European Central Bank Working Paper, 163: 1-39.
• Friedman, B. M. (1980), “Survey Evidence on the Rationality of Interest Rate Expecta- tions” Journal of Monetary Economics, 6(4): 453-465.
• Froot, K. A. ve Ito, T. (1988), “On the Consistency of Short-run and Long-run Ex- change Rate Expectations” NBER Working Paper Series, 2577: 1-20.
• Johansen, S. (1988), “Statistical Analysis of Co-integration Vectors” Journal of Eco- nomic Dynamics and Control, 12: 293-300.
• Johansen, S. ve Juselius, K. (1990), “Maximum Likelihood Estimation and Inferences on Co-integration with Applications to the Demand for Money” Oxford Bulle- tin of Economics and Statistics, 52: 169–210.
• Jonsson, T. ve Osterholm, P. (2012), “The Properties of Survey-Based Inflation Expec- tations in Sweden” Empirical Economics, 42: 79-94.
• Kara, H. ve Küçük-Tuğer, H. (2005), “Some Evidence on the (Ir)Rationality of Inflation Expectations in Turkey” The Central Bank of The Republic of Turkey Work- ing Papers, 12: 1-25.
• Karadaş, E. ve Öğünç, F. (2003), “An Analysis of Inflation Expectations of Turkish Private Manufacturing Industry” Central Bank Review, 3(2): 57-83.
• Liu, P. C. (1994), “Are Money Announcement Forecasts Rational?” Oxford Bulletin of Economics and Statistics, 56(4): 475-483.
• Lyziak, T. (2003), “Consumer Inflation Expectations in Poland” European Central Bank Working Paper Series, 287: 1-59.
• Metin, K. ve Muslu, İ. (1999), “Money Demand, the Cagan Model, Testing Rational Expectations vs Adaptive Expectations: The Case of Turkey” Empirical Eco- nomics, 24: 415-426. Newey,W.K. and K.D.West, (1987),
• “A Simple, Positive Semi-Definite,
• Heteroskedasticity and Auto-correlated Consistent Covariance Matrix”,
• Econometrica, 55: 703-708. Nielsen, H. (2003), “Inflation Expectations in the EU- Rational?”
• http://www.econ.kuleuven.be/smye/abstracts/p325.pdf .(03.01.2012).
• Oral, E. (2002), “Inflation Expectations Derived from Business Tendency Survey of the Central Bank” ERC/METU VI. International Conference in Economics, 11-14 Eylül, Ankara.
• Oral, E., Saygılı, H., Saygılı, M. ve Tuncel, S. Ö. (2009), “An Assessment of the Cen- tral Bank of the Republic of Turkey’s Survey of Expectations” İktisat İşletme ve Finans Dergisi, 24(276): 23-51.
• Phillips, P. ve Peron, P. (1988), “Testing for a Unit Root in Time Series Regressions” Biometrika, 75(2): 335-346.
• Razzak, W. A. (1997), “Testing the Rationality of the National Bank of New Zealand’s Survey Data” Reserve Bank of New Zealand Discussion Paper, G97/5: 1-24.
• Riaz, M. (2012), “Forecast Analysis of Food Price Inflation in Pakistan: Applying Ra- tionality Criterion for VAR Forecast” Developing Country Studies, 2(1): 63- 72.
• TCMB (2012), http://www.tcmb.gov.tr/ikt-yonelim/beklenti/bilginotu.pdf.(03.11.2012).