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Rational Expectations and Monetary Institutions

In: Monetary Theory and Economic Institutions

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  • Axel Leijonhufvud

    (University of California)

Abstract

The concept of ‘monetary regime figures prominently in the recent rational expectations literature. Elsewhere,1 I have used the following two-part definition of it: a monetary régime is a system of expectations that governs the behaviour of the public and that is sustained by the consistent behaviour of the policy-making authorities. This is a rational expectations concept although, as the rational expectations literature tends to go, it is stated here in fairly loose language. The present definition assumes that people understand the systematic components of the authorities’ behaviour in a general sort of way, but avoids a linkage so tight as to build, for example, short-run neutrality or policy ineffectiveness assertions into the concept itself. Nonetheless, it is in effect an equilibrium concept. The expectations of the public and the actual behaviour of the authorities mesh in equilibrium; when they do not mesh, it does not make sense to speak of a régime.

Suggested Citation

  • Axel Leijonhufvud, 1987. "Rational Expectations and Monetary Institutions," International Economic Association Series, in: Marcello Cecco & Jean-Paul Fitoussi (ed.), Monetary Theory and Economic Institutions, chapter 3, pages 44-65, Palgrave Macmillan.
    • Handle: RePEc:pal:intecp:978-1-349-08781-5_3
    DOI: 10.1007/978-1-349-08781-5_3
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    References listed on IDEAS

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    1. James Tobin, 1963. "Commercial Banks as Creators of 'Money'," Cowles Foundation Discussion Papers 159, Cowles Foundation for Research in Economics, Yale University.
    2. Gordon, Robert J, 1981. "Output Fluctuations and Gradual Price Adjustment," Journal of Economic Literature, American Economic Association, vol. 19(2), pages 493-530, June.
    3. Friedman, Milton, 1977. "Nobel Lecture: Inflation and Unemployment," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 451-472, June.
    4. Benjamin Eden, 1979. "The Nominal System : Linkage to the Quantity of Money or to Nominal Income," Revue Économique, Programme National Persée, vol. 30(1), pages 121-143.
    5. Axel Leijonhufvud, 1981. "Inflation and Economic Performance," UCLA Economics Working Papers 223, UCLA Department of Economics.
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    Cited by:

    1. Elvio Accinelli & Juan Gabriel Brida, 2007. "Modelos económicos con múltiples regímenes," Revista de Administración, Finanzas y Economía (Journal of Management, Finance and Economics), Tecnológico de Monterrey, Campus Ciudad de México, vol. 1(2), pages 96-115.
    2. Novák, Zsuzsanna & Tatay, Tibor, 2021. "Captivated by Liquidity – Theoretical Traps and Practical Mazes," Public Finance Quarterly, Corvinus University of Budapest, vol. 66(1), pages 50-67.

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