Questions tagged [rational-expectations]

The Rational Expectations Hypothesis postulates that the value a variable is expected to take by an economic agent equals the mathematical expected value of that variable conditional on all information available at the time of expectations formation.

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Definiton of information sets in rational expecations models

I am struggling with the notion of 'information sets' in the context of rational expectation models in economics. I found interesting notes on the web (http://www2.econ.iastate.edu/tesfatsi/reintro....
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Does a monopolistically competitive market outcome involves assuming rational expectations?

E.g. When Grazzini et al. (2014) discuss a "monopolistically competitive outcome" (MC) in their paper ($2.1), which is based on Dixit-Stiglitz's model, 1977, does this outcome involve assuming ...
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Are heterogenous expectations models still determinate, closed models?

Cars Hommes proposed many models based on agents having heterogeneous expectations. Agents switch between a fixed set of prediction rules depending on their forecast error history. However, it seems ...
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Sen's property $\alpha$ holds when limited attention in choice?

Consider the limited attention choice framework by Matejka and McKay (2015). This framework can give rise to consideration sets, as roughly summarised below. Consideration sets in the limited ...
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How to deal with potential output in the Sims (2002) framework?

In Sims(2002), the author explains how one solves a linear rational expectations model. $$\Gamma_0S_t=\Gamma_1S_{t-1}+C+\Psi z_t + \Pi \mu_t$$ The only thing exogenously defined in the $z_t$ ...
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Does the law of motion remain constant in a rational expectation model? Does it constantly change in a boundedly rational agent framework?

Is the following true? The rational expectations hypothesis also implicitly assumes that the law of motion of the economy does not change, which actually is a self-fulfilling assumption as long as ...
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In a rational expectation framework, do all agents know the true law of motion of the economy?

Expectations are model consistent, on average, in a RE framework, so errors are made, but on average they are zero. thus In a rational expectation framework, do all agents know the true law of ...
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Inertia and rational expectations DSGE models

What types of inertia or other phenomena in the data are hard to model with New Keynesian or other DSGE models assuming rational expectations?
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Successes and limitations of New Keynesian DSGE models?

What are some good review papers that discuss the successes and limitations of current state of the art (New Keynesian) DSGE models assuming rational expectations? Probably some of these reviews can ...
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Solving Euler Equation for standard DSGE Models

I am studying a rather standard DSGE Model with a standard Utility function $U = f(c_t, n_t, M_t)$ subject to a budget constraint. Now, tosolve the intertemporal optimization problem I have, or ...
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expectations and least squares learning

This method is presented in Evans and Honkapohja (2001) I don't understand the formula used by the least squares learning technique to form expectations in economic models. This formula is given by, ...