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|Title:||Testing Myopia in Economic Models|
|Keywords:||myopia, testing, price adjustment|
|Citation:||Economics and Finance Working Papers, Brunel University, 00-03|
|Abstract:||This paper suggests a simple test of whether agents are forward-looking or myopic that can be implemented on the type of backward-looking econometric models that are usually estimated.. We argue that myopic behaviour implies a simple parametric restriction that will not hold if agents are forward-looking. We illustrate our tests by examining price adjustment in the UK using aggregate quarterly data from 1963-1997. Our evidence strongly suggests that pricesetting is forward-looking and not myopic.|
|Appears in Collections:||Economics and Finance|
Dept of Economics and Finance Research Papers
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