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Rational Expectations in the Aggregate

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  • John Haltiwanger

    (UCLA)

  • Michael Waldman

    (UCLA)

Abstract

This paper investigates the relationship between the way rational expectations is employed in practice and the argument initially put forth to justify its use. In practice, rational expectations has meant that the expectations of each agent taken separately is consistent with the predictions of the theory. This is different than the argument frequently used by proponents of rational expectations that, on an aggregate level, expectations should be consistent with the theory. The primary findings are that standard and aggregate rational expectations typically yield systematically different equilibria and that the size of the difference depends positively on the degree of synergism. Copyright 1989 by Oxford University Press.

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Bibliographic Info

Paper provided by UCLA Department of Economics in its series UCLA Economics Working Papers with number 327.

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Date of creation: 01 Apr 1985
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Handle: RePEc:cla:uclawp:327

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Web page: http://www.econ.ucla.edu/

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  1. Kantor, Brian, 1979. "Rational Expectations and Economic Thought," Journal of Economic Literature, American Economic Association, vol. 17(4), pages 1422-41, December.
  2. Friedman, Milton, 1977. "Nobel Lecture: Inflation and Unemployment," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 451-72, June.
  3. Akerlof, George A & Yellen, Janet L, 1985. "A Near-rational Model of the Business Cycle, with Wage and Price Intertia," The Quarterly Journal of Economics, MIT Press, vol. 100(5), pages 823-38, Supp..
  4. Conlisk, John, 1980. "Costly optimizers versus cheap imitators," Journal of Economic Behavior & Organization, Elsevier, vol. 1(3), pages 275-293, September.
  5. John Haltiwanger & Michael Waldman, 1983. "Rational Expectations and the Limits of Rationality: An Analysis of Heterogeneity," UCLA Economics Working Papers 303, UCLA Department of Economics.
  6. Mullineaux, Donald J, 1980. "Unemployment, Industrial Production, and Inflation Uncertainty in the United States," The Review of Economics and Statistics, MIT Press, vol. 62(2), pages 163-69, May.
  7. Maddock, Rodney & Carter, Michael, 1982. "A Child's Guide to Rational Expectations," Journal of Economic Literature, American Economic Association, vol. 20(1), pages 39-51, March.
  8. Mayshar, Joram, 1983. "On Divergence of Opinion and Imperfections in Capital Markets," American Economic Review, American Economic Association, vol. 73(1), pages 114-28, March.
  9. P. Diamond, 1980. "Aggregate Demand Management in Search Equilibrium," Working papers 268, Massachusetts Institute of Technology (MIT), Department of Economics.
  10. Jarrow, Robert A, 1980. " Heterogeneous Expectations, Restrictions on Short Sales, and Equilibrium Asset Prices," Journal of Finance, American Finance Association, vol. 35(5), pages 1105-13, December.
  11. Howitt, Peter, 1985. "Transaction Costs in the Theory of Unemployment," American Economic Review, American Economic Association, vol. 75(1), pages 88-100, March.
  12. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
  13. Russell, Thomas & Thaler, Richard, 1985. "The Relevance of Quasi Rationality in Competitive Markets," American Economic Review, American Economic Association, vol. 75(5), pages 1071-82, December.
  14. Hoover, Kevin D, 1984. "Two Types of Monetarism," Journal of Economic Literature, American Economic Association, vol. 22(1), pages 58-76, March.
  15. Levi, Maurice D & Makin, John H, 1980. "Inflation Uncertainty and the Phillips Curve: Some Empirical Evidence," American Economic Review, American Economic Association, vol. 70(5), pages 1022-27, December.
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Cited by:
  1. De Long, J Bradford & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann, 1990. "Noise Trader Risk in Financial Markets," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 703-38, August.
  2. Ernst Fehr & Jean-Robert Tyran, 2001. "Does Money Illusion Matter?," American Economic Review, American Economic Association, vol. 91(5), pages 1239-1262, December.
  3. Fehr, Ernst & Tyran, Jean-Robert, 2000. "Does Money Illusion Matter? An Experimental Approach," CEPR Discussion Papers 2561, C.E.P.R. Discussion Papers.
  4. Recanatini, Francesca & Ryterman, Randi, 2001. "Disorganization or self-organization : the emergence of business associations in a transition economy," Policy Research Working Paper Series 2539, The World Bank.
  5. Ernst Fehr & Jean-Robert Tyran, 2004. "Expectations and the Effects of Money Illusion," DNB Staff Reports (discontinued) 115, Netherlands Central Bank.
  6. Carl Bonham & Richard Cohen & Shigeyuki Abe, 2006. "The Rationality and Heterogeneity of Survey Forecasts of the Yen-Dollar Exchange Rate: A Reexamination," Working Papers 200611, University of Hawaii at Manoa, Department of Economics.
  7. Anderlini, Luca & Canning, David, 2001. "Structural Stability Implies Robustness to Bounded Rationality," Journal of Economic Theory, Elsevier, vol. 101(2), pages 395-422, December.
  8. David Laster & Paul Bennett & In Sun Geoum, 1997. "Rational bias in macroeconomic forecasts," Staff Reports 21, Federal Reserve Bank of New York.

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