Re: RATIONAL EXPECTATIONS and other forms of collective madness

[Clifford Poirot <cpoirot@xxxxxxxxxxx>]

Yes, but you forget the best one of all-the intertemporal substitution of
labor for leisure that takes place in real business cycle theory!

-----Original Message-----
From: Niggle, Christopher [mailto:Christopher_Niggle@xxxxxxxxxxxx]
Sent: Thursday, May 08, 2003 5:23 PM
To: 'Esteban Perez '; 'pkt@xxxxxxxxxxxxxxxx '; 'mosler@xxxxxxxxxxxxxx '
Cc: Niggle, Christopher
Subject: Re: RATIONAL EXPECTATIONS and other forms of collective madness


Another crazy aspect of the ratex story re macroeconomics is that its
proponents also always assume that the quantity theory of money obtains, so
that increases in the money supply would always lead to immediate increases
in prices, wages and interest rates...At least this is true for all of the
textbook versions of ratex I am familiar with.

Ratex is almost as psychotic as the Ricardian equivalence tax story
(whenever government runs a deficit we anticipate paying higher future taxes
and the savings rate increases).  This nutty idea also still appears in most
macro texts.

How do these guys manage to tell these stories with a straight face?

Chris



-----Original Message-----
From: Esteban Perez
To: pkt@xxxxxxxxxxxxxxxx; mosler@xxxxxxxxxxxxxx
Sent: 5/8/03 11:16 AM
Subject: Re: RATIONAL EXPECTATIONS

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

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>>> 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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