Economic models

• Are Distorted Beliefs Too Good to be True?

  Staff Working Paper 2003-4 Miroslav Misina

  In a recent attempt to account for the equity-premium puzzle within a representative-agent model, Cecchetti, Lam, and Mark (2000) relax the assumption of rational expectations and in its place use the assumption of distorted beliefs. The author shows that the explanatory power of the distorted beliefs model is due to an inconsistency in the model and that an attempt to remove this inconsistency removes the model's explanatory power.

  Content Type(s): Staff research, Staff working papers Topic(s): Economic models, Financial markets JEL Code(s): D, D8, D84, G, G1, G12

• Modélisation et prévision du taux de change réel effectif américain

  Staff Working Paper 2003-3 René Lalonde, Patrick Sabourin

  This study describes a simple model for predicting the real U.S. exchange rate. Starting with a large number of error-correction models, the authors choose the one giving the best out-of-sample forecasts over the period 1992Q3–2002Q1.

  Content Type(s): Staff research, Staff working papers Topic(s): Econometric and statistical methods, Economic models, Exchange rates, International topics JEL Code(s): E, E1, E17, F, F3, F31, F4, F47