Inflation and the Government Budget Constraint | SpringerLinkEconomic Policy in Theory and Practice pp Cite as. Third, the model predicts that the residuals in the regression equation fit by Cagan will be random walks, which explains the very high serial correlation that Cagan actually encountered see Sargent, Unable to display preview. Download preview PDF. Skip to main content.
Lecture 3: Rational Expectations and Policy Neutrality
Rational Expectations and Inflation
Jump to content. All scholars strive to make important contributions to their discipline. Thomas J. Sargent irrevocably transformed his. In the early s, inspired by the groundbreaking work of Robert Lucas, Sargent and colleagues at the University of Minnesota rebuilt macroeconomic theory from its basic assumptions and micro-level foundations to its broadest predictions and policy prescriptions. Prior models had assumed that people respond passively to changes in fiscal and monetary policy; in rational-expectations models, people behave strategically, not robotically. The new theory recognized that people look to the future, anticipate how governments and markets will act, and then behave accordingly in ways they believe will improve their lives.
RATIONAL EXPECTATIONS AND THE. DYNAMICS OF HYPERINFLATION by. Thomas J. Sargent and Neil Wallace. Discussion Paper No. 22, September
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Thomas J., The use of expectations in economic theory is not new.
This collection of essays uses the lens of rational expectations theory to examine how governments anticipate and plan for inflation, and provides insight into the pioneering research for which the author was awarded the Nobel Prize in economics. Rational expectations theory is based on the simple premise that people will use all the information available to them in making economic decisions, yet applying the theory to macroeconomics and econometrics is technically demanding. This book engages with practical problems in economics in a less formal, noneconometric way, demonstrating how rat This book engages with practical problems in economics in a less formal, noneconometric way, demonstrating how rational expectations can satisfactorily interpret a range of historical and contemporary events. It focuses on periods of actual or threatened depreciation in the value of a nation's currency.