Hypothesis of rational expectations in the international economy: developments in different countries

The article reveals the development of the hypothesis of rational expectations according to the theory of rational expectations (TRO), where economic entities in their forecasts make optimal use of all available information, including the assessment of government policy, to form an opinion on future developments. It turns out that expectations in the economy are very important. Rational expectations are those that can be systematically erroneous. They do not necessarily have to be performed exactly, but this is only because economic processes are subject to random fluctuations that do not depend on the actions of the state, or because the actions of the state in economic policy are unpredictable for economic agents.

The effect of central bank credibility on forward guidance in an estimated New Keynesian model

This paper examines the effectiveness of forward guidance shocks in the US. We estimate a New Keynesian model with imperfect central bank credibility and heterogeneous expectations using Bayesian methods and survey data from the Survey of Professional Forecasters (SPF). The results provide important takeaways: (1) The estimated credibility of the Fed’s forward guidance announcements is relatively high, but anticipation effects are attenuated. Accordingly, output and inflation do not respond as favorably as in the fully credible counterfactual. (2) The so-called “forward guidance puzzle” arises partly from the unrealistically large responses of macroeconomic variables to forward guidance under perfect credibility and homogeneous fully informed rational expectations, assumptions which are found to be jointly inconsistent with the observed US data. (3) Imperfect credibility provides a plausible explanation for the empirical evidence of forecasting error predictability based on forecasting disagreement found in the SPF data. Thus, we show that accounting for imperfect credibility and forecasting disagreements is important to understand the formation of expectations and the transmission mechanism of forward guidance.

A Critical History of "Public Rational Inflation Expectations": Rethinking its Foundations

The core claim of the paper is that public rational expextations of inflation is a more mystic than science. The main evidence is That article, which has been written by Nobel laureate, Thomas Sargent and prof. Joseph Zeira, was based on fake facts, which showed that the rational expectations theory is refutable as confronted with economic reality and facts.

A Critical History of "Public Rational Inflation Expectations": Rethinking its Foundations

The core claim of the paper is that public rational expextations of inflation is a more mystic than science. The main evidence is That article, which has been written by Nobel laureate, Thomas Sargent and prof. Joseph Zeira, was based on fake facts, which showed that the rational expectations theory is refutable as confronted with economic reality and facts.

The Equilibrium Consequences of Indexing

We develop a benchmark model to study the equilibrium consequences of indexing in a standard rational expectations setting. Individuals incur costs to participate in financial markets, and these costs are lower for individuals who restrict themselves to indexing. A decline in indexing costs directly increases the prevalence of indexing, thereby reducing the price efficiency of the index and augmenting relative price efficiency. In equilibrium, these changes in price efficiency in turn further increase indexing, and raise the welfare of uninformed traders. For well-informed traders, the share of trading gains stemming from market timing increases relative to stock selection trades.

Why macroeconomics needs experimental evidence

This paper discusses how macroeconomics can and already has begun to make use of controlled experimental methods to address the assumptions and predictions of macroeconomic models as well as to evaluate the impacts of macroeconomic policy interventions. Specific issues addressed include rational expectations and alternatives, intertemporal optimization with an application to household consumption and savings decisions and the efficacy of various monetary policies.