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Rational Expectations and the Dynamic Structure of Macroeconomic Models:A Critical Review

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  • Robert J. Shiller

Abstract

The recent literature on rational expectations in macroeconomic theory is surveyed here with the objective of distilling from the various papers useful suggestions for econometric methodology. The paper is not concerned with the empirical questions with which these models have been associated, but rather with the value and usefulness of the concept of rational expectations. The paper begins with a brief discussion of the theory of martingales as it has been applied to microeconomic theory. Then, the general linear rational expectations model (of which most models discussed in the literature are, in terms of their structure, special cases) is developed arid its properties, advantages and drawbacks discussed. The paper concludes with a discussion of the possibilities for estimation arid application of such linear models.

Suggested Citation

  • Robert J. Shiller, 1975. "Rational Expectations and the Dynamic Structure of Macroeconomic Models:A Critical Review," NBER Working Papers 0093, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:0093
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    References listed on IDEAS

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    1. Cyert, Richard M & DeGroot, Morris H, 1974. "Rational Expectations and Bayesian Analysis," Journal of Political Economy, University of Chicago Press, vol. 82(3), pages 521-536, May/June.
    2. Jacob A. Mincer, 1969. "Models of Adaptive Forecasting," NBER Chapters, in: Economic Forecasts and Expectations: Analysis of Forecasting Behavior and Performance, pages 83-111, National Bureau of Economic Research, Inc.
    3. repec:bla:econom:v:40:y:1973:i:157:p:12-43 is not listed on IDEAS
    4. Roll, Richard, 1974. "Rational Response to the Money Supply," Journal of Political Economy, University of Chicago Press, vol. 82(3), pages 587-597, May/June.
    5. Stanley Diller, 1969. "Expectations in the Term Structure of Interest Rates," NBER Chapters, in: Economic Forecasts and Expectations: Analysis of Forecasting Behavior and Performance, pages 112-166, National Bureau of Economic Research, Inc.
    6. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
    7. Taylor, John B, 1975. "Monetary Policy during a Transition to Rational Expectations," Journal of Political Economy, University of Chicago Press, vol. 83(5), pages 1009-1021, October.
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