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Rational Expectations

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  • Sheffrin,Steven M.

Abstract

Economists have developed models in which individuals form expectations of key variables in a 'rational' manner such that these expectations are consistent with actual economic environments. Professor Sheffrin first explores the logical foundation of the concept and the case for employing it in economic analysis. Subsequent chapters investigate its use in macroeconomics, financial markets, and microeconomics. A final chapter assesses its impact on theoretical and empirical work in economics and policy arenas. The author argues that while rational expectations are still central to macroeconomic policy debates, fully workable models have not yet been devised, and offers reasons for the lack of practical and conceptual progress. All chapters of the second edition have been revised or expanded. New sections inter alia include material on learning, the rationality of reported expectations, alternative recent developments explicitly or implicitly using rational expectations, new tests of the Lucas critique, and models of noise trading. The book is written in a non-technical fashion for beginning graduate students and non-specialists.

Suggested Citation

  • Sheffrin,Steven M., 1996. "Rational Expectations," Cambridge Books, Cambridge University Press, number 9780521479394.
  • Handle: RePEc:cup:cbooks:9780521479394
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    Cited by:

    1. Patrick Rondé & Caroline Hussler, 2006. "Biais cognitifs et choix technologiques : une analyse des priorités des experts français," Économie et Prévision, Programme National Persée, vol. 175(4), pages 65-77.
    2. Bryan Caplan & Edward Stringham, 2005. "Mises, bastiat, public opinion, and public choice," Review of Political Economy, Taylor & Francis Journals, vol. 17(1), pages 79-105.
    3. Kowalski, Tadeusz & Shachmurove, Yochanan, 2011. "The financial crisis: What is there to learn?," Global Finance Journal, Elsevier, vol. 22(3), pages 238-247.
    4. Ebrahim, M. Shahid & Mathur, Ike & ap Gwilym, Rhys, 2014. "Integrating corporate ownership and pension fund structures: A general equilibrium approach," Journal of Banking & Finance, Elsevier, vol. 49(C), pages 553-569.
    5. Jason Barr, 2010. "Skyscrapers and the Skyline: Manhattan, 1895-2004," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 38(3), pages 567-597.
    6. Sjølie, Hanne K. & Latta, Gregory S. & Adams, Darius M. & Solberg, Birger, 2011. "Impacts of agent information assumptions in forest sector modeling," Journal of Forest Economics, Elsevier, vol. 17(2), pages 169-184, April.
    7. Shafiqur Rahman & M. Shahid Ebrahim, 2005. "The Futures Pricing Puzzle," Computing in Economics and Finance 2005 35, Society for Computational Economics.
    8. Tadeusz Kowalski & Yochanan Shachmurove, 2011. "John Maynard Keynes: Is That you Knocking on the Door?," Working Papers 56, Department of Applied Econometrics, Warsaw School of Economics.
    9. Shannon Mudd & Neven Valev, 2009. "Once Bitten, Twice Shy: Experiences Of A Banking Crisis And Expectations Of Future Crises," William Davidson Institute Working Papers Series wp969, William Davidson Institute at the University of Michigan.
    10. Pippenger, John, 2008. "Freely Floating Exchange Rates Do Not Systematically Overshoot," University of California at Santa Barbara, Economics Working Paper Series qt97m8z6hw, Department of Economics, UC Santa Barbara.
    11. Wesley Phoa & Sergio Focardi & Frank Fabozzi, 2007. "How do conflicting theories about financial markets coexist?," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 29(3), pages 363-391.
    12. Bryan Caplan, 2002. "Systematically Biased Beliefs About Economics: Robust Evidence of Judgemental Anomalies from the Survey of Americans and Economists on the Economy," Economic Journal, Royal Economic Society, vol. 112(479), pages 433-458, April.
    13. Reid, Monique, 2015. "Inflation expectations of the inattentive general public," Economic Modelling, Elsevier, vol. 46(C), pages 157-166.
    14. Tadeusz Kowalski & Yochanan Shachmurove, 2011. "An Historical Walk Through Recent Financial Crises," PIER Working Paper Archive 11-019, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    15. Hosseini, Hamid, 2003. "The arrival of behavioral economics: from Michigan, or the Carnegie School in the 1950s and the early 1960s?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 32(4), pages 391-409, September.
    16. Marcin Kalinowski & Grzegorz Krzykowski, 2012. "The rationality of individual investors' investment decisions on the Polish stock market (Racjonalnosc decyzji inwestycyjnych inwestorow indywidualnych na polskim rynku akcji)," Problemy Zarzadzania, University of Warsaw, Faculty of Management, vol. 10(39), pages 169-177.
    17. van den Hauwe, Ludwig, 2000. "The Drama Revisited," MPRA Paper 8688, University Library of Munich, Germany.
    18. Bernt P. Stigum, 2000. "Rationality in Econometrics," Econometric Society World Congress 2000 Contributed Papers 0747, Econometric Society.
    19. Rainer Schulz & Axel Werwatz, 2008. "House Prices and Replacement Cost: A Micro-Level Analysis," SFB 649 Discussion Papers SFB649DP2008-013, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    20. Emilio Galdeano-Gómez, 2007. "Composite price expectations: An empirical analysis for the Spanish horticultural sector," Agribusiness, John Wiley & Sons, Ltd., vol. 23(1), pages 57-83.

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