The Natural-Rate Hypothesis, the Rational-Expectations Hypothesis, and the Remarkable Survival of Non-Market-Clearing Assumptions
AbstractNon-market-clearing models continue to dominate analysis of macroeconomic fluctuations and discussions of macroeconomic policy. This situation is remarkable because non-market-clearing assumptions seem to be inconsistent with the essential presumption of neoclassical economic analysis that market outcomes exhaust opportunities for mutually advantageous exchange. Non-market-clearing models apparently have survived because they have evolved to incorporate both the natural-rate hypothesis and the rational-expectations hypothesis and because the alternative "equilibrium" approach has failed empirically.This paper expands on these ideas and briefly discusses some of the problems that we face in attempting to evaluate empirically the recent vintage of non-market-clearing models. The main difficulties seem to involve accounting for shifts in the natural levels of real aggregates and specifying the timing of the past anticipations that determine the effects of current monetary policy.
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Date of creation: Feb 1984
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- Grossman, Herschel I., 1983. "The natural-rate hypothesis, the rational-expectations hypothesis, and the remarkable survival of non-market-clearing assumptions," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 19(1), pages 225-245, January.
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- Herschel I. Grossman, 1992.
"Monetary Economics: A Review Essay,"
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- Bennett T. McCallum, 1982.
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- Bennett T. McCallum, 1984. "Macroeconomics After a Decade of Rational Expectations: Some Critical Issues," NBER Working Papers 1050, National Bureau of Economic Research, Inc.
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Federal Reserve Bank of Kansas City, pages 105-135.
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