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Rational Expectations Dynamics: A Methodological Critique

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Abstract

This paper analyses RE macromodels from the methodological perspective. It proposes a particular property, robustness, which should be considered a necessary feature of scientifically valid models in economics, but which is absent from many RE macromodels. To restore this property many macroeconomists resort to detailed and implausible assumptions, which take their models a long way from simple Rational Expectations. The paper draws attention to the problems inherent in the technique of local linearisation and concludes by proposing the use of nonlinear models, analysed globally.

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  • Donald A. R. George & Les Oxley, 2013. "Rational Expectations Dynamics: A Methodological Critique," ESE Discussion Papers 217, Edinburgh School of Economics, University of Edinburgh.
  • Handle: RePEc:edn:esedps:217
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