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Macroeconomic Analysis Without the Rational Expectations Hypothesis

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  • Michael Woodford

    ()
    (Department of Economics, Columbia University, New York, NY 10027)

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    Abstract

    The article presents a temporary equilibrium framework for macroeconomic analysis that allows for a wide range of possible specifications of expectations but reduces to a standard new Keynesian model in the limiting case of rational expectations. This common framework is then used to contrast the assumptions and implications of several different ways of relaxing the assumption of rational expectations. As an illustration of the method, the implications of alternative assumptions for the selection of a monetary policy rule are discussed. Other issues treated include the conditions required for Ricardian equivalence and for existence of a deflation trap.

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    File URL: http://www.annualreviews.org/doi/abs/10.1146/annurev-economics-080511-110857
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    Bibliographic Info

    Article provided by Annual Reviews in its journal Annual Review of Economics.

    Volume (Year): 5 (2013)
    Issue (Month): 1 (05)
    Pages: 303-346

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    Handle: RePEc:anr:reveco:v:5:y:2013:p:303-346

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    Related research

    Keywords: temporary equilibrium; learning dynamics; Ricardian equivalence; deflation trap; Taylor rule;

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    Cited by:
    1. Hommes, Cars & Zhu, Mei, 2014. "Behavioral learning equilibria," Journal of Economic Theory, Elsevier, vol. 150(C), pages 778-814.
    2. Giusto, Andrea, 2014. "Adaptive learning and distributional dynamics in an incomplete markets model," Journal of Economic Dynamics and Control, Elsevier, vol. 40(C), pages 317-333.
    3. Andreas Orland & Michael W.M. Roos, 2011. "The New Keynesian Phillips Curve with Myopic Agents," Ruhr Economic Papers 0281, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.

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