Encompassing and rational expectations: How sequential corroboration can imply refutation

David Hendry and Neil Ericsson

Empirical Economics, 1999, vol. 24, issue 1, 21 pages

Abstract: Even though pieces of empirical evidence individually may corroborate an economic theory, their joint existence may refute that same theory. Testing of rational expectations models provides a concrete illustration of this principle. Surprisingly, empirical refutation of a rational expectations model may occur without having to estimate that model, and the refutation may be for a large class of expectations-based models and not just for a particular model specification. Narrow money demand in the United Kingdom illustrates such refutation. The general proposition concerning corroboration and refutation strongly favors the building of empirical models that are consistent with all available evidence.

Keywords: Conditional; models; ·; congruence; ·; corroboration; ·; encompassing; ·; feedback; ·; feedforward; ·; Lucas; critique; ·; rational; expectations; ·; refutation; ·; statistical; inference (search for similar items in EconPapers)
JEL-codes: C52 E13 (search for similar items in EconPapers)
Date: 1999-02-11
Note: received: July 1994/final version received: July 1997
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Citations: View citations in EconPapers (15)

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Working Paper: Encompassing and rational expectations: how sequential corroboration can imply refutation (1989)
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