Summary
Previous studies of the price equation have generally used past values of variables to proxy expectations. In this note expected wage change, import price change and output change are formulated in both an extrapolative and unbiased manner. Empirical evidence on the efficacy of various alternative specifications is presented for the UK for 1961–1978 and the rational approach is found to work well.
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This research was partly supported by a grant from the Social Science Research Council. We are grateful to P. Blundell and M. Hill for research assistance and to two anonymous referees for helpful comments.
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Holden, K., Peel, D.A. Expectations and the price equation: Some estimates for the UK. Empirical Economics 5, 31–37 (1980). https://doi.org/10.1007/BF01848041
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DOI: https://doi.org/10.1007/BF01848041