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Macroeconomics After a Decade of Rational Expectations: Some Critical Issues

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  • Bennett T. McCallum

Abstract

The main section of this paper discusses competing theories of aggregate supply that are currently being utilized in macroeconomic models with rational expectations. The distinction between flexible-price equilibrium models and models with nominal contracts is emphasized and three models of the latter type are described and contrasted, it is argued that rejection of flexible-price equilibrium theories, as the evidence seems to warrant,does not require abandonment of the equilibrium approach. Also included are remarks on the present status of the rational expectations version of the natural-rate hypothesis. The second section of the paper briefly discusses a few issues concerning the equilibrium approach and aggregate demand, with attention devoted to the overlapping-generations framework. The third section considers a recent attempt, involving the use of "vector autoregression"models, to denigrate the importance of the Lucas critique of traditional policy-evaluation procedures.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1050.

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Date of creation: Apr 1984
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Handle: RePEc:nbr:nberwo:1050

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  1. Taylor, John B, 1979. "Staggered Wage Setting in a Macro Model," American Economic Review, American Economic Association, vol. 69(2), pages 108-13, May.
  2. Gordon, Robert J, 1982. "Price Inertia and Policy Ineffectiveness in the United States, 1890-1980," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1087-1117, December.
  3. Sargent, Thomas J, 1976. "A Classical Macroeconometric Model for the United States," Journal of Political Economy, University of Chicago Press, vol. 84(2), pages 207-37, April.
  4. Thomas J. Sargent, 1973. "Rational Expectations, the Real Rate of Interest, and the Natural Rate of Unemployment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 4(2), pages 429-480.
  5. Frederic S. Mishkin, 1982. "Does Anticipated Monetary Policy Matter? An Econometric Investigation," NBER Working Papers 0506, National Bureau of Economic Research, Inc.
  6. King, Robert G., 1981. "Monetary information and monetary neutrality," Journal of Monetary Economics, Elsevier, vol. 7(2), pages 195-206.
  7. John F. Boschen & Herschel I. Grossman, 1983. "Tests of Equilibrium Macroeconomics Using Contemporaneous Monetary Data," NBER Working Papers 0558, National Bureau of Economic Research, Inc.
  8. Robert G. King & Charles I. Plosser, 1984. "The Behavior of Money, Credit, and Prices in a Real Business Cycle," NBER Working Papers 0853, National Bureau of Economic Research, Inc.
  9. 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.
  10. Bryant, John & Wallace, Neil, 1979. "The Inefficiency of Interest-bearing National Debt," Journal of Political Economy, University of Chicago Press, vol. 87(2), pages 365-81, April.
  11. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
  12. McCallum, Bennett T., 1983. "The role of overlapping-generations models in monetary economics," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 18(1), pages 9-44, January.
  13. Blinder, Alan S. & Fischer, Stanley, 1981. "Inventories, rational expectations, and the business cycle," Journal of Monetary Economics, Elsevier, vol. 8(3), pages 277-304.
  14. Hansen, Lars Peter & Sargent, Thomas J., 1980. "Formulating and estimating dynamic linear rational expectations models," Journal of Economic Dynamics and Control, Elsevier, vol. 2(1), pages 7-46, May.
  15. Robert J. Barro, 1976. "Unanticipated Money Growth and Unemployment in the United States," Working Papers 234, Queen's University, Department of Economics.
  16. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
  17. Brunner, Karl & Cukierman, Alex & Meltzer, Allan H., 1980. "Stagflation, persistent unemployment and the permanence of economic shocks," Journal of Monetary Economics, Elsevier, vol. 6(4), pages 467-492, October.
  18. McCallum, Bennett T, 1980. "Rational Expectations and Macroeconomic Stabilization Policy: An Overview," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 12(4), pages 716-46, November.
  19. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
  20. Franco Modigliani & Lucas Papademos, 1975. "Targets for Monetary Policy in the Coming Year," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 6(1), pages 141-166.
  21. Modigliani, Franco, 1977. "The Monetarist Controversy or, Should We Forsake Stabilization Policies?," American Economic Review, American Economic Association, vol. 67(2), pages 1-19, March.
  22. Sargent, Thomas J & Wallace, Neil, 1975. ""Rational" Expectations, the Optimal Monetary Instrument, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 83(2), pages 241-54, April.
  23. James Tobin, 1980. "Stabilization Policy Ten Years After," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 11(1, Tenth ), pages 19-90.
  24. Robert B. Litterman, 1983. "Optimal control of the money supply," Staff Report 82, Federal Reserve Bank of Minneapolis.
  25. Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
  26. Barro, Robert J., 1976. "Rational expectations and the role of monetary policy," Journal of Monetary Economics, Elsevier, vol. 2(1), pages 1-32, January.
  27. Fischer, Stanley, 1977. "Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 191-205, February.
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Cited by:
  1. Bennett T. McCallum, 1990. "Real Business Cycle Models," NBER Working Papers 2480, National Bureau of Economic Research, Inc.
  2. Andres, Javier & Lopez-Salido, J. David & Nelson, Edward, 2005. "Sticky-price models and the natural rate hypothesis," Journal of Monetary Economics, Elsevier, vol. 52(5), pages 1025-1053, July.
  3. Flood, Robert P & Hodrick, Robert J, 1985. "Optimal Price and Inventory Adjustment in an Open-Economy Model of the Business Cycle," The Quarterly Journal of Economics, MIT Press, vol. 100(5), pages 887-914, Supp..
  4. Haubrich, Joseph G & King, Robert G, 1991. "Sticky Prices, Money, and Business Fluctuations," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(2), pages 243-59, May.

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