Re: RATIONAL EXPECTATIONS

["Esteban Perez" <eperez@xxxxxxxxxxxx>]

1. Rational expectations: "imputes to the people inside the model much more knowledge about the system they are operating in than is available to the economist or econometrician who is using the model to try to understand their behavior. In particular, an econometrician faces the problem of estimating probability distributions and laws of motion that the agents in the model are assumed to know." Sargent. This is part of the fuss.

2. Similar statements can be found in other textbooks, Attfield et al. "So in applying rational expectations economists have in the absence of any alternative, tended to assume that noe of the information which theyr posess or which their models suggest is important is unavailable to agents".

3. Not only does it imply much more knowledge than agents really posess but it is a concept that can lead to confusing and contradictory statements. You can check Sargent's definition of a change in regime in Rational Expectations theory in Sargent (1984).

4. Lucas (1977) admitted that: rational expectations are applicable when there are repeated instances of essentially similar events and where  agents can collect and process information in a stable framework and that they utilise this information in forecating the future in a stable way and free of systematic biases. But what kind of events are exactly similar and replicable over time?


Esteban Perez

―---------------------------------------------------------------------------------
>>> Warren Mosler <mosler@xxxxxxxxxxxxxx> 05/08/03 01:55pm >>>
FROM BARRO'S BOOK:

THE VIEWPOINT THAT INDIVIDUALS MAKE FORECASTS OR
ESTIMATES OF UNKNOWN VARIABLES, SUCH AS THE GENERAL
PRICE LEVEL, IN THE BEST POSSIBLE MANNER, UTILIZING
ALL INFORMATION CURRENTLY AVAILABLE.

What's the fuss???

warren

=====
Warren Mosler, www.mosler.org
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Primary email contact:  mosler@xxxxxxxxxxxxxx

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