The paper studies the financial market efficiency based on the data from Tallinn Stock Exchange, the rationality of expectations that is treated as financial rationality and the time series properties of inflation time series to get the forecasting model. The hypotheses to be tested are of interest to both macroeconomists and policy-makers. Two time periods can be distinguished for the modelling purposes in the case of CPI. During the first period the concept of rational expectations is clearly non-usable in macroeconomic models of that period. It can probably be used during the second period. Three time periods can be distinguished in market data. Clear improvement of market efficiency has been found in Estonian capital market. The study relies both on the economic theory and on time series analysis. The authors use banking statistics and macroeconomic data on Estonia.
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