Abstract:When I think about the notion of rational expectations, I am reminded of a character in a Kurt Vonnegut, Jr., novel who, after becoming “unstuck in time,” is condemned to live and relive his life in r...When I think about the notion of rational expectations, I am reminded of a character in a Kurt Vonnegut, Jr., novel who, after becoming “unstuck in time,” is condemned to live and relive his life in random order until his death. In so doing, he is able to know the past and the future, though not perfectly. His omniscience is incomplete because some key factors are not revealed to this hapless character, whose futile efforts are unable to avert a horrible destiny. Ironically, his actions to escape his fate are the very trigger needed to bring it about. Thus, the long-run future is completely determined, even though unanticipated surprises may occur at any instant. With a rational expectations framework, the agents' forecasts of prices and other essential economic variables are correct in the long run, though there are unanticipated short-run surprises along the way.Read More
Publication Year: 2001
Publication Date: 2001-09-17
Language: en
Type: book-chapter
Indexed In: ['crossref']
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