IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/88822.html
   My bibliography  Save this paper

Do Households Actually Generate Rational Expectations? “Invisible Hand” for Steady State

Author

Listed:
  • Harashima, Taiji

Abstract

The rational expectations hypothesis has been criticized for imposing substantial demands on economic agents, and this problem has not been sufficiently solved by introducing a learning mechanism. I present a new approach to this problem by assuming that households behave on the basis of not the rate of time preference but the capital-output (income) ratio. I show that households can equivalently reach and stay at a steady state without doing anything equivalent to computing a complex macro-econometric model. Although households are not required to implement anything difficult, they look to be behaving fully rationally, led by an “invisible hand.”

Suggested Citation

  • Harashima, Taiji, 2018. "Do Households Actually Generate Rational Expectations? “Invisible Hand” for Steady State," MPRA Paper 88822, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:88822
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/88822/1/MPRA_paper_88822.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
    2. Marcet, Albert & Sargent, Thomas J., 1989. "Convergence of least squares learning mechanisms in self-referential linear stochastic models," Journal of Economic Theory, Elsevier, vol. 48(2), pages 337-368, August.
    3. Robert M. Solow, 1956. "A Contribution to the Theory of Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 70(1), pages 65-94.
    4. Gary S. Becker & Casey B. Mulligan, 1997. "The Endogenous Determination of Time Preference," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(3), pages 729-758.
    5. Taiji Harashima, 2004. "A More Realistic Endogenous Time Preference Model and the Slump in Japan," Macroeconomics 0402015, University Library of Munich, Germany, revised 09 Feb 2004.
    6. Ellison, Martin & Pearlman, Joseph, 2011. "Saddlepath learning," Journal of Economic Theory, Elsevier, vol. 146(4), pages 1500-1519, July.
    7. Harashima, Taiji, 2014. "Time Preference Shocks," MPRA Paper 60205, University Library of Munich, Germany.
    8. Taiji HARASHIMA, 2015. "Bubbles Bluffs and Greed," Theoretical and Practical Research in the Economic Fields, ASERS Publishing, vol. 6(1), pages 21-49.
    9. Thomas J. Sargent, 1973. "Rational Expectations, the Real Rate of Interest, and the Natural Rate of Unemployment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 4(2), pages 429-480.
    10. Anthony Downs, 1957. "An Economic Theory of Political Action in a Democracy," Journal of Political Economy, University of Chicago Press, vol. 65(2), pages 135-135.
    11. Harashima, Taiji, 2010. "Sustainable Heterogeneity: Inequality, Growth, and Social Welfare in a Heterogeneous Population," MPRA Paper 22521, University Library of Munich, Germany.
    12. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
    13. Robert J. Barro, 1999. "Ramsey Meets Laibson in the Neoclassical Growth Model," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(4), pages 1125-1152.
    14. Harashima, Taiji, 2009. "Depression as a Nash Equilibrium Consisting of Strategies of Choosing a Pareto Inefficient Transition Path," MPRA Paper 18953, University Library of Munich, Germany.
    15. Harashima, Taiji, 2012. "Sustainable Heterogeneity as the Unique Socially Optimal Allocation for Almost All Social Welfare Functions," MPRA Paper 40938, University Library of Munich, Germany.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Harashima, Taiji, 2022. "Numerical Simulations of Reaching a Steady State: No Need to Generate Any Rational Expectations," MPRA Paper 115335, University Library of Munich, Germany.
    2. Harashima, Taiji, 2020. "A Theory of the Credit-to-GDP Gap: Using Credit Gaps to Predict Financial Crises," MPRA Paper 111732, University Library of Munich, Germany.
    3. Harashima, Taiji, 2023. "Numerical Simulation of an Endogenously Growing Economy and Its Balanced Growth Path," MPRA Paper 119391, University Library of Munich, Germany.
    4. Harashima, Taiji, 2020. "Why Is Risk Aversion Essentially Important for Endogenous Economic Growth?," MPRA Paper 101011, University Library of Munich, Germany.
    5. Harashima, Taiji, 2019. "The Correlation between Time Preference and Incomes Is Spurious: They Are Bridged by Fluid Intelligence," MPRA Paper 96756, University Library of Munich, Germany.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Harashima, Taiji, 2020. "A Mechanism of Recession that Accompanies Persistent Pareto Inefficiency," MPRA Paper 98468, University Library of Munich, Germany.
    2. Harashima, Taiji, 2020. "Why Is Risk Aversion Essentially Important for Endogenous Economic Growth?," MPRA Paper 101011, University Library of Munich, Germany.
    3. Taiji HARASHIMA, 2016. "A Theory Of Deflation: Can Expectations Be Influenced By A Central Bank?," Theoretical and Practical Research in the Economic Fields, ASERS Publishing, vol. 7(2), pages 98-145.
    4. Harashima, Taiji, 2016. "The Cause of the Great Recession: What Caused the Downward Shift of the GDP Trend in the United States?," MPRA Paper 69215, University Library of Munich, Germany.
    5. Harashima, Taiji, 2022. "A Household’s Preferences Vary Depending on Whether Incomes Are Permanent or Temporary: A Solution to the Time-Inconsistency Problem and Equity-Premium Puzzle," MPRA Paper 114762, University Library of Munich, Germany.
    6. Harashima, Taiji, 2017. "Should a Government Fiscally Intervene in a Recession and, If So, How?," MPRA Paper 78053, University Library of Munich, Germany.
    7. Stephen J. Turnovsky, 2019. "Trends and fads in macroeconomic dynamics," Indian Economic Review, Springer, vol. 54(1), pages 179-197, December.
    8. Harashima, Taiji, 2015. "Bubbles, Bluffs, and Greed," MPRA Paper 64361, University Library of Munich, Germany.
    9. Harashima, Taiji, 2018. "Bubbles and Bluffs: Risk Lovers Can Survive Economically," MPRA Paper 83615, University Library of Munich, Germany.
    10. Harashima, Taiji, 2014. "Time Preference Shocks," MPRA Paper 60205, University Library of Munich, Germany.
    11. Harashima, Taiji, 2023. "Secular Increase in Economic Inequality Accompanying a Constant Output/Capital Ratio," MPRA Paper 117705, University Library of Munich, Germany.
    12. Harashima, Taiji, 2019. "The Correlation between Time Preference and Incomes Is Spurious: They Are Bridged by Fluid Intelligence," MPRA Paper 96756, University Library of Munich, Germany.
    13. Holden, Tom, 2008. "Rational macroeconomic learning in linear expectational models," MPRA Paper 10872, University Library of Munich, Germany.
    14. Harashima, Taiji, 2020. "A Theory of the Credit-to-GDP Gap: Using Credit Gaps to Predict Financial Crises," MPRA Paper 111732, University Library of Munich, Germany.
    15. Aysit Tansel & Ceyhan Ozturk & Erkan Erdil, 2021. "The Impact of Body Mass Index on Growth, Schooling, Productivity, and Savings: A Cross-Country Study," Koç University-TUSIAD Economic Research Forum Working Papers 2118, Koc University-TUSIAD Economic Research Forum.
    16. Robert J. Barro, 1989. "New Classicals and Keynesians, or the Good Guys and the Bad Guys," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 125(III), pages 263-273, September.
    17. Gerunov, Anton, 2014. "Критичен Преглед На Основните Подходи За Моделиране На Икономическите Очаквания [A Critical Review of Major Approaches for Modeling Economic Expectations]," MPRA Paper 68797, University Library of Munich, Germany.
    18. Strulik, Holger, 2016. "Limited self-control and long-run growth," Mathematical Social Sciences, Elsevier, vol. 83(C), pages 1-8.
    19. Huh, Chan G. & Lansing, Kevin J., 2000. "Expectations, credibility, and disinflation in a small macroeconomic model," Journal of Economics and Business, Elsevier, vol. 52(1-2), pages 51-86.
    20. Taiji HARASHIMA, 2013. "The Phillips Curve And A Micro-Foundation Of Trend Inflation," Theoretical and Practical Research in the Economic Fields, ASERS Publishing, vol. 4(2), pages 151-182.

    More about this item

    Keywords

    Capital-output ratio; Rational expectation; Steady state; Sustainable heterogeneity; Time preference;
    All these keywords.

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:88822. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.