Switching Between Expectation Processes in the Foreign Exchange Market: A Probabilistic Approach Using Survey Data

This paper relaxes a fundamental hypothesis commonly accepted in the expectation formation literature: expectations are, unchangingly, either rational or generated by one of the three simple extrapolative, regressive or adaptive processes. Using expectations survey data provided by Consensus Forecasts on six European exchange rates against the US Dollar, we find that the rational expectations hypothesis is rejected at the aggregate level. By implementing a switching regression methodology with stochastic choice of regime, we show that the expectation generating process is given at any time by some combination of the three simple processes. An interpretation of this framework in terms of economically rational expectations is suggested.expectation formation; switching-regime; exchange rates; survey data; cost and advantage analysis

Portfolio Flows, Foreign Direct Investment, Crises

The goal of the paper is to analyze how financial and economic crises affect the relation between capital flows and their determinants. We develop a model of foreign portfolio investment (FPI) and foreign direct investment (FDI), and apply it to Turkey using an endogenous break analysis and accounting for country risk. We identify two breakpoints that correspond to two crises dates. Our results show changes in the sign and/or coefficient of a number of determinants in both types of investment and thus suggest that analyses based on the assumption of parameter constancy may lead to misleading results.capital flows, crises, structural changes

Economically rational expectations theory: evidence from the WTI oil price survey data

In the light of the economically rational expectation theory, this article shows how an expert chooses an optimal oil price forecast function given that information is costly. In this framework we propose an expectational process which nests all processes considered in the literature. By aggregating individual processes, it is shown that the overall expectational process may result from individual mixing effects and/or group heterogeneity effects. Using Consensus Forecast survey data, for three and twelve month horizons, we find that the rational expectation hypothesis is rejected and that none of the traditional extrapolative, regressive and adaptive processes and macroeconomic fundamentals is relevant. We show however, that a combination of the three traditional processes explains satisfactorily oil price expectations, which appear to exert a stabilizing strength in the oil market.expectation formation; oil price

Modelling oil price expectations: evidence from survey data

Using Consensus Forecast survey data on WTI oil price expectations for three and twelve month horizons over the period November 1989 – December 2008, we find that the rational expectation hypothesis is rejected and that none of the traditional extrapolative, regressive and adaptive processes fits the data. We suggest a mixed expectation model defined as a linear combination of these traditional processes, which we interpret as the aggregation of individual mixing behavior and of heterogenous groups of agents using simple processes. This approach is consistent with the economically rational expectations theory. We show that the target price included in the regressive component of this model depends on macroeconomic fundamentals whose effects are subject to structural changes. The estimation results led to validate the mixed expectational model for the two horizons.Expectations formation, oil price

Taşkışla İTÜ'nün

Taha Toros Arşivi, Dosya No: 109-Kışlalarİstanbul Kalkınma Ajansı (TR10/14/YEN/0033) İstanbul Development Agency (TR10/14/YEN/0033

Anonymous, neutral, and resolute social choice revisited

We revisit the incompatibility of anonymity and neutrality in singleton-valued social choice. We first analyze the irresoluteness structure these two axioms together with Pareto efficiency impose on social choice rules and deliver a method to refine irresolute rules without violating anonymity, neutrality, and efficiency. Next, we propose a weakening of neutrality called consequential neutrality that requires resolute social choice rules to assign each alternative to the same number of profiles. We explore social choice problems in which consequential neutrality resolves impossibilities that stem from the fundamental tension between anonymity, neutrality, and resoluteness.Series: Department of Strategy and Innovation Working Paper Serie

Économétrie des modèles à changement de régimes : un essai de synthèse

Ce travail a pour objectif de dresser un bilan de la littérature sur la modélisation et l’estimation du changement structurel en économie. La présentation des approches suit l’ordre décroissant d’information à la disposition du modélisateur quant à la cause du changement de régimes. Une première catégorie de modèles suppose connue la règle qui gouverne la sélection du régime à chaque instant, cette règle pouvant être déterministe comme dans les modèles à seuils (TAR, STAR) ou stochastique comme dans les modèles à changements endogènes. Dans une classe alternative de modèles, la règle de sélection non observable est remplacée par des probabilités constantes inconnues associées aux régimes, lesquelles sont non conditionnelles à l’information passée dans le cas des modèles à mélange de distributions et conditionnelles au régime précédent dans les modèles à changements markoviens. La discussion comparative des différentes approches est complétée par un survol des études empiriques.This paper aims to survey the literature on modeling and estimating the structural change in economy. The alternative approaches are presented following the decreasing order of information available to the investigator about the cause of the regime change. One class of models specifies the rule governing the regime selection whether the latter is deterministic as in threshold autoregressive regression models and smooth transition autoregressive models or stochastic as in endogenous change models. Another class includes models where the unobservable selection rule is replaced by a set of unknown constant probabilities associated with the regimes: these probabilities are unconditional on past information in the case of mixture normal distributions models and conditional on past regime in Markov-switching models. The comparative presentation is completed by an overview of the empirical studies

Istırapları paylaşan ruhile Tevfik Fikret

Taha Toros Arşivi, Dosya No: 98/A-Tevfik Fikret. Not: Gazetenin "Edebi Tahliller" köşesinde yayımlanmıştır.İstanbul Kalkınma Ajansı (TR10/14/YEN/0033) İstanbul Development Agency (TR10/14/YEN/0033