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

Georges Prat (1) , Remzi Uctum (1)

1 EconomiX - EconomiX

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.

Mots clés: expectation formation; oil price

Domaines: Economies et finances

Georges Prat, Remzi Uctum. Economically rational expectations theory: evidence from the WTI oil price survey data. 2006. ⟨halshs-00173113⟩