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When are adaptive expectations rational? A generalization

By Ben Shepherd

Abstract

This note presents a simple generalization of the adaptive expectations mechanism in which the learning parameter is time variant. It is shown that expectations generated in this way are rational in the sense of producing minimum mean squared forecast errors for a broad class of time series models, namely any process that can be written in linear state space form.

Topics: C53 - Forecasting and Prediction Methods; Simulation Methods, C22 - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
Year: 2011
DOI identifier: 10.1016/j.econlet.2011.11.017
OAI identifier: oai:mpra.ub.uni-muenchen.de:34644

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