On multiple equilibria and the rational expectations hypothesis?

1995 ◽  
Vol 7 (1) ◽  
pp. 113-124
Author(s):  
Jean-Marc Tallon
Keyword(s):  
Rational Expectations ◽  
Multiple Equilibria ◽  
Expectations Hypothesis

A NOTE ON MUTH'S RATIONAL EXPECTATIONS HYPOTHESIS: A TIME-VARYING COEFFICIENT INTERPRETATION

2006 ◽  
Vol 10 (3) ◽  
pp. 415-425 ◽  
Author(s):  
P.A.V.B. SWAMY ◽  
GEORGE S. TAVLAS
Keyword(s):  
Rational Expectations ◽  
Econometric Model ◽  
Objective Probability ◽  
Varying Coefficient Models ◽  
Time Varying ◽  
Exact Representation ◽  
Expectations Hypothesis ◽  
Varying Coefficient ◽  
True Model ◽  
Necessary And Sufficient

Under certain interpretations of its coefficients, a specified econometric model is an exact representation of the “true” model, defining the “objective” probability distribution. This note enumerates these interpretations. In the absence of the conditions implied by these interpretations, the econometric model is misspecified. The note shows that model misspecifications prevent the satisfaction of a necessary and sufficient condition for individual expectations to be rational in Muth's sense. Whereas restrictive forms of econometric models can give very inaccurate predictions, this note describes the conditions under which the predictions generated from time-varying coefficient models coincide with the predictions generated from the relevant economic theory.

scholarly journals RATIONAL EXPECTATIONS: RETROSPECT AND PROSPECT

2013 ◽  
Vol 17 (5) ◽  
pp. 1169-1192 ◽  
Author(s):  
Kevin D. Hoover ◽  
Warren Young
Keyword(s):  
Social Sciences ◽  
Financial Crisis ◽  
Behavioral Economics ◽  
Rational Expectations ◽  
Panel Discussion ◽  
50Th Anniversary ◽  
Expectations Hypothesis ◽  
History Of Economics ◽  
History Of ◽  
Recent Financial Crisis

The transcript of a panel discussion marking the 50th anniversary of John Muth's “Rational Expectations and the Theory of Price Movements” (Econometrica 1961). The panel consisted of Michael Lovell, Robert Lucas, Dale Mortensen, Robert Shiller, and Neil Wallace. The discussion was moderated by Kevin Hoover and Warren Young. The panel touched on a wide variety of issues related to the rational-expectations hypothesis, including its history, starting with Muth's work at Carnegie Tech; its methodological role; applications to policy; its relationship to behavioral economics; its role in the recent financial crisis; and its likely future.The panel discussion was held in a session sponsored by the History of Economics Society at the Allied Social Sciences Association (ASSA) meetings in the Capitol 1 Room of the Hyatt Regency Hotel in Denver, Colorado.

Monetary Transmission in the Term Structure of Interest Rates in Spain (1995-2003)

2021 ◽  
Vol 26 (1) ◽  
pp. 279-292
Author(s):  
María A. Prats ◽  
Gloria M. Soto
Keyword(s):  
Interest Rates ◽  
Term Structure ◽  
Rational Expectations ◽  
Transmission Mechanism ◽  
Monetary Transmission ◽  
Var Model ◽  
Expectations Hypothesis ◽  
Weak Evidence ◽  
One Year ◽  
The One

The aim of this paper is to investigate whether the effectiveness of the transmission mechanism of monetary  policy in Spain has changed since EMU establishment. The analysis is based on the fulfillment of the Expectations Hypothesis under rational expectations and the methodology is implemented through a  cointegrated  bivariate VAR model. The results reveal the existence of  monetary transmission in the term structure in the  period prior to EMU, even though the evidence is stronger up to the one-year rate. From 1999, the results are   only consistent with a weak evidence of monetary transmission.

The Rational Expectations Hypothesis and the New Classicals

2020 ◽  
pp. 57-100
Author(s):  
Christopher Tsoukis
Keyword(s):  
Market Efficiency ◽  
Bounded Rationality ◽  
Rational Expectations ◽  
Island Model ◽  
Supply Function ◽  
Stabilization Policy ◽  
Wage Setting ◽  
Expectations Hypothesis ◽  
Lucas Critique ◽  
Forward Looking

This chapter analyses the Rational Expectations Hypothesis (REH), a pillar of forward-looking macroeconomics that emphasizes expectations. It also develops its implications in terms of ‘market efficiency’ and related concepts. It then reviews New Classical Macroeconomics: its main tenets, the ‘Lucas supply function’ that is crucial for much subsequent theory, and the ‘Lucas island model’ that underpins it. The centrepiece ‘Policy Ineffectiveness Proposition’ (PIP) is developed both intuitively and more formally. Subsequently, the chapter reviews one major line of criticism of PIP, the fact that markets may not clear, based in particular on staggered wage setting. Broader criticisms of the REH, including ‘bounded rationality’, are also reviewed. The chapter concludes with yet another landmark contribution of Robert Lucas, namely the ‘Lucas critique’ of activist stabilization policy.

scholarly journals Information Rigidity and the Expectations Formation Process: A Simple Framework and New Facts

2015 ◽  
Vol 105 (8) ◽  
pp. 2644-2678 ◽  
Author(s):  
Olivier Coibion ◽  
Yuriy Gorodnichenko
Keyword(s):  
Formation Process ◽  
Rational Expectations ◽  
Imperfect Information ◽  
State Dependence ◽  
Expectations Hypothesis ◽  
Economic Significance ◽  
Expectations Formation ◽  
Information Models ◽  
International Data ◽  
Information Rigidity

We propose a new approach to test the full-information rational expectations hypothesis which can identify whether rejections of the null arise from information rigidities. This approach quantifies the economic significance of departures from the null and the underlying degree of information rigidity. Applying this approach to US and international data of professional forecasters and other agents yields pervasive evidence consistent with the presence of information rigidities. These results therefore provide a set of stylized facts which can be used to calibrate imperfect information models. Finally, we document evidence of state-dependence in the expectations formation process. (JEL C53, D83, D84, E13, E31, E37)

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