Publication Date
7-1988
Series Number
88-WP 33
Abstract
This study examines the empirical implications of extending the rational expectations hypothesis (REH) to include price uncertainty. Unlike previous studies, a general estimation framework that incorporates both the restrictions on structural parameters and the variance-covariance terms is developed. A new time series approach known as GARCH processes is also used to generate time-varying expectations of both the means and the variances of exogenous variables in the REH model with risk.
The empirical application is with a quarterly model of the U.S. broiler industry; the results indicate that the rational expectation of price variance is an important determinant of broiler supply. Additionally, a formal test indicates that the restrictions implied by the REH cannot be rejected. The restricted model also compares favorably with an unrestricted version that uses instruments for the mean and the variance of expected prices.
Publication Information
This working paper was published as Aradhyula, Satheesh V. and Matthew T. Holt, "Risk Behavior and Rational Expectations in the U.S. Broiler Market," American Journal of Agricultural Economics 71 (1989): 892–902, doi:10.2307/1242667.
Recommended Citation
Aradhyula, Satheesh V. and Holt, Matthew T., "Risk Behavior and Rational Expectations in the U.S. Broiler Market" (1988). CARD Working Papers. 74.
https://lib.dr.iastate.edu/card_workingpapers/74
Included in
Agricultural and Resource Economics Commons, Agricultural Economics Commons, Economics Commons