Individual Forecasting and Aggregate Outcomes
'Rational Expectations' Examined

The papers in this volume provide a complex view of market processes.

Roman Frydman (Edited by), Edmund S. Phelps (Edited by)

9780521310956, Cambridge University Press

Paperback, published 2 October 1986

250 pages
22.8 x 15.2 x 1.3 cm, 0.352 kg

'After reading this excellent, stimulating book the uncommitted reader may well feel that there are several logical or methodological problems which imply that the usual class of models which embodies the rational expectations hypothesis is unattractive as a basis for some form of economic analysis, in particular, macroeconomic policy design … I suspect that the concept of model theoretic expectations will generate useful insights in the modelling of expectations in a number of areas such as asset markets or arbitrage process. It naturally leads to a consideration of expectations generated as some weighted average of different models. I greatly enjoyed this book and can strongly recommend it.' The Economic Journal

Growing out of a conference on Expectations Formation and Economic Disequilibrium held in New York City in 1981, the papers in this volume provide a complex view of market processes in which individual rationality is no guarantee of convergence to the 'correct' model and the equilibrium coordination of agents' plans. They reject the 'optimality' argument for the rational expectations hypothesis, opening the door to other hypotheses of optimal expectations of agents in the decentralized market economy.

Preface
1. Introduction Roman Frydman and Edmund S. Phelps
2. The trouble with 'rational expectations' and the problem of inflation stabilization Edmund S. Phelps
Comment Phillip Cagan
3. Expectations of others' expectations and the transitional nonneutrality of fully believed systematic monetary policy Juan Carlos Di Tata
Comment Clive Bull
4. The stability of rational expectations in macroeconomic models George Evans
Comment Guillermo A. Calvo
5. Individual rationality, decentralization, and the rational expectations hypothesis Roman Frydman
6. Convergence to rational expectations equilibrium Margaret Bray
Comment Roy Radner
7. A distinction between the unconditional expectational equilibrium and the rational expectations equilibrium Roman Frydman
8. On mistaken beliefs and resultant equilibria Alan Kirman
Comment Jerry Green
9. Equilibrium theory with learning and disparate expectations: some issues and methods Robert M. Townsend
Comment John B. Taylor
10. Keynesianism, monetarism, and rational expectations: some reflections and conjectures Axel Leijonhufvud
Comment Frank Hahn
Index.

Subject Areas: Economic theory & philosophy [KCA]