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Rational Expectations in the Aggregate

  • John Haltiwanger

    (UCLA)

  • Michael Waldman

    (UCLA)

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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File URL: http://www.econ.ucla.edu/workingpapers/wp327.pdf
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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
Contact details of provider: Web page: http://www.econ.ucla.edu/

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  1. 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.
  2. 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.
  3. 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.
  4. Conlisk, John, 1980. "Costly optimizers versus cheap imitators," Journal of Economic Behavior & Organization, Elsevier, vol. 1(3), pages 275-293, September.
  5. Howitt, Peter, 1985. "Transaction Costs in the Theory of Unemployment," American Economic Review, American Economic Association, vol. 75(1), pages 88-100, March.
  6. 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.
  7. Diamond, Peter A, 1982. "Aggregate Demand Management in Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 881-94, October.
  8. Hoover, Kevin D, 1984. "Two Types of Monetarism," Journal of Economic Literature, American Economic Association, vol. 22(1), pages 58-76, March.
  9. Kantor, Brian, 1979. "Rational Expectations and Economic Thought," Journal of Economic Literature, American Economic Association, vol. 17(4), pages 1422-41, December.
  10. Haltiwanger, John & Waldman, Michael, 1985. "Rational Expectations and the Limits of Rationality: An Analysis of Heterogeneity," American Economic Review, American Economic Association, vol. 75(3), pages 326-40, June.
  11. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
  12. 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.
  13. Friedman, Milton, 1977. "Nobel Lecture: Inflation and Unemployment," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 451-72, June.
  14. 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..
  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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