Almost all tests of rational expectation models have been conducted under the hypothesis of complete price flexibility. In these models, it is unanticipated inflation that causes business fluctuations. William Poole (1976] recently reviewed empirical studies of rational expectation models and concluded that they fail to explain the persistence of business cycles. 1 However, rational expectation models because of their striking theoretical implications do deserve more extensive testing. In this paper, it is shown that even without instantaneous price adjustment it is possible to have cyclical fluctuations in output arising solely from informational inadequacies. A test of this hypothesis is developed which involves looking directly at unanticipated money growth and fiscal policy. Series for unanticipated money growth and fiscal variables are calculated from time-series analysis; economic actors are taken to use all currently available time-series information for forecasting. A minor econometric innovation is a procedure for preventing future values of a stochastic process from affecting current estimates of the process that the agents use.