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How the Rational Expectations Revolution has Changed Macroeconomic Policy Research

In: Advances in Macroeconomic Theory

Author

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  • John Taylor

    (Stanford University)

Abstract

The rational expectations hypothesis is by far the most common expectations assumption used in macroeconomic research today. This hypothesis, which simply states that people’s expectations are the same as the forecasts of the model being used to describe those people, was first put forth and used in models of competitive product markets by John Muth in the 1960s. But it was not until the early 1970s that Robert Lucas (1972, 1976) incorporated the rational expectations assumption into macroeconomics and showed how to make it operational mathematically. The ‘rational expectations revolution’ is now as old as the Keynesian revolution was when Robert Lucas first brought rational expectations to macroeconomics.

Suggested Citation

  • John Taylor, 2001. "How the Rational Expectations Revolution has Changed Macroeconomic Policy Research," International Economic Association Series, in: Jacques Drèze (ed.), Advances in Macroeconomic Theory, chapter 5, pages 79-96, Palgrave Macmillan.
    • Handle: RePEc:pal:intecp:978-0-333-99275-3_5
    DOI: 10.1057/9780333992753_5
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    Cited by:

    1. Travaglini, Guido, 2007. "The U.S. Dynamic Taylor Rule With Multiple Breaks, 1984-2001," MPRA Paper 3419, University Library of Munich, Germany, revised 15 Jun 2007.

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