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Rational Expectations in the Aggregate

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  • Haltiwanger, John C
  • Waldman, Michael

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.

Suggested Citation

  • Haltiwanger, John C & Waldman, Michael, 1989. "Rational Expectations in the Aggregate," Economic Inquiry, Western Economic Association International, vol. 27(4), pages 619-636, October.
  • Handle: RePEc:oup:ecinqu:v:27:y:1989:i:4:p:619-36
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    3. Pope, Rulon, 1990. "Aggregation, Heterogeneity and Risk: Adding Apples and Oranges, or Apples and Apples," 1990 Quantifying Long Run Agricultural Risks and Evaluating Farmer Responses to Risk Meeting, January 28-31, 1990, Sanibel Island, Florida 271538, Regional Research Projects > S-232: Quantifying Long Run Agricultural Risks and Evaluating Farmer Responses to Risk.
    4. 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 703-738, August.
    5. Ernst Fehr & Jean-Robert Tyran, 1999. "Does Money Illusion Matter? An Experimental Approach," CESifo Working Paper Series 184, CESifo.
    6. Ernst Fehr & Jean-Robert Tyran, 2001. "Does Money Illusion Matter?," American Economic Review, American Economic Association, vol. 91(5), pages 1239-1262, December.
    7. Zijp, R. van, 1991. "The rise of new classical economics," Serie Research Memoranda 0077, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
    8. Zijp, R. van & Visser, H., 1992. "Mathematical formalization and the analysis of Cantillon effects," Serie Research Memoranda 0002, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
    9. Zijp, R. van, 1990. "New classical monetary business cycle theory," Serie Research Memoranda 0058, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
    10. Bryan Caplan, 2003. "The Logic of Collective Belief," Rationality and Society, , vol. 15(2), pages 218-242, May.
    11. Paul Bennett & In Sun Geoum & David S. Laster, 1997. "Rational bias in macroeconomic forecasts," Staff Reports 21, Federal Reserve Bank of New York.
    12. 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.

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