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The Rational Expectations Revolution: A Review Article of: Preston J. Miller, ed.:The Rational Expectations Revolution, Readings from the Front Line

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  • Frederic S. Mishkin

Abstract

This review article of Preston Miller's The Rational Expectations Revolution, Readings From the Front Line focuses on the impact of this research on macroeconomic policymaking. Although policymakers have generally not accepted the equilibrium business cycle models advocated in many of the articles in the Miller volume and even continue to use traditional Keynesian macroeconometric models for policy analysis, several of the lessons from the rational expectations revolution have become central in thinking about policymaking. Policymakers now recognize the importance of expectations and credibility to the outcomes of particular policies. This means that they are more cautious in their use of econometric models and are less likely to advocate discretionary activist stabilization policies. They are also more willing to design policymaking to avoid the time-inconsistency problem and take a long rather than a short-run view, thereby avoiding myopic policies that produce undesirable outcomes.

Suggested Citation

  • Frederic S. Mishkin, 1995. "The Rational Expectations Revolution: A Review Article of: Preston J. Miller, ed.:The Rational Expectations Revolution, Readings from the Front Line," NBER Working Papers 5043, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:5043
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    References listed on IDEAS

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    1. George W. Stadler, 1994. "Real Business Cycles," Journal of Economic Literature, American Economic Association, vol. 32(4), pages 1750-1783, December.
    2. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-1370, November.
    3. Charles W. Calomiris & Christopher Hanes, 1994. "Historical Macroeconomics and American Macroeconomic History," NBER Working Papers 4935, National Bureau of Economic Research, Inc.
    4. Long, John B, Jr & Plosser, Charles I, 1983. "Real Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 39-69, February.
    5. Lucas, Robert E, Jr, 1973. "Some International Evidence on Output-Inflation Tradeoffs," American Economic Review, American Economic Association, vol. 63(3), pages 326-334, June.
    6. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
    7. Frederic S. Mishkin, 1991. "Asymmetric Information and Financial Crises: A Historical Perspective," NBER Chapters,in: Financial Markets and Financial Crises, pages 69-108 National Bureau of Economic Research, Inc.
    8. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
    9. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-491, June.
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    Cited by:

    1. Mundle, Sudipto & Bhanumurthy, N.R. & Das, Surajit, 2011. "Fiscal consolidation with high growth: A policy simulation model for India," Economic Modelling, Elsevier, vol. 28(6), pages 2657-2668.

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    JEL classification:

    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models

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