Abstract
In Muth’s definition given above, the decisive feature which differentiates rational expectations from other types of expectation behavior is the requirement of optimality. Then the question is: What is an optimal prediction? Usually it is defined as the minimum mean-square error predictor. I follow here the presentation proposed by Pradel [1985]. (See also Gourieroux and Pradel [1986].)
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© 1991 Springer-Verlag Berlin Heidelberg
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Ivaldi, M. (1991). On Testing the RE Hypothesis: A Survey. In: A Structural Analysis of Expectation Formation. Lecture Notes in Economics and Mathematical Systems, vol 354. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-46735-6_6
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DOI: https://doi.org/10.1007/978-3-642-46735-6_6
Publisher Name: Springer, Berlin, Heidelberg
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