IDEAS home Printed from https://ideas.repec.org/p/use/tkiwps/1923.html
   My bibliography  Save this paper

The engineering tools that shaped the rational expectations revolution

Author

Listed:
  • M.J. Boumans

Abstract

The rational expectations revolution was not only based on the introduction of Muth’s idea of rational expectations to macroeconomics; the introduction of Muth’s hypothesis cannot explain the more drastic change of the mathematical toolbox and concepts, research strategies, vocabulary, and questions since the 1980s. The main claim is that the shift from “Keynesian economics†to “new classical economics†is based on a shift from a control engineering approach to an information engineering methodology. The paper even shows that the “revolution†was more radical. The change of engineering tools has changed macroeconomics more deeply, not only its methodology but also its epistemology and ontology. To show this shift in epistemology and ontology, the history of economics will be interwoven with the history of mathematics which cannot be detangled from the emergence of the digital computer and the influence of this emergence on the changed nature of mathematics: the adoption of a new concept of solution, no longer a number, a formula, or a function, but an algorithm. The result of this new concept of solution was a new approach to the analysis of processes. Information engineering studies the fundamental limits in communication and finds its origins in Shannon’s theory of communication, and incorporates the tools designed by Turing, Shannon, Kálmán, and Bellman. The resulting ontology of this kind of engineering is a world populated by machines that communicate with each other by exchanging information. This information does not, however, contain only signals about the system states but also noise that needs to be filtered out. It is not a deterministic world, but one governed by stochastic processes. The decisions these machines take is conditioned on the (noisy) information they have about the current state of the world but at the same time will affect future states. Policy in this world therefore means tracing an optimal trajectory taking all these issues into account.

Suggested Citation

  • M.J. Boumans, 2019. "The engineering tools that shaped the rational expectations revolution," Working Papers 19-23, Utrecht School of Economics.
    • Handle: RePEc:use:tkiwps:1923
    as

    Download full text from publisher

    File URL: https://dspace.library.uu.nl/bitstream/handle/1874/394047/19_23.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Lucas, Robert E, Jr, 1980. "Methods and Problems in Business Cycle Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 12(4), pages 696-715, November.
    2. Judy L Klein, 2015. "The Cold War Hot House for Modeling Strategies at the Carnegie Institute of Technology," Working Papers Series 19, Institute for New Economic Thinking.
    3. Robert E. Lucas, Jr., 2004. "Keynote Address to the 2003 HOPE Conference: My Keynesian Education," History of Political Economy, Duke University Press, vol. 36(5), pages 12-24, Supplemen.
    4. Morgan,Mary S., 2012. "The World in the Model," Cambridge Books, Cambridge University Press, number 9781107002975, January.
    5. Morgan,Mary S., 2012. "The World in the Model," Cambridge Books, Cambridge University Press, number 9780521176194, January.
    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. Jean-Bernard Chatelain & Kirsten Ralf, 2020. "How macroeconomists lost control of stabilization policy: towards dark ages," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 27(6), pages 938-982, November.

    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. Marcel Boumans & Catherine Herfeld, 2022. "Progress in Economics," Working Papers 2201, Utrecht School of Economics.
    2. Khamdamov, T., 2022. "A brief overview of the evolution of computer simulations in economic research," Journal of the New Economic Association, New Economic Association, vol. 54(2), pages 189-207.
    3. Arthur Brackmann Netto, 2017. "The Double Edge of Case-Studies: A Frame-Based Definition of Economic Models," Working Papers, Department of Economics 2017_21, University of São Paulo (FEA-USP).
    4. Peter Rodenburg, 2016. "How Full is Full Employment?How Tools and Not Theory Explained Full Employment," HISTORY OF ECONOMIC THOUGHT AND POLICY, FrancoAngeli Editore, vol. 2016(2), pages 5-25.
    5. Morgan, Mary S., 2020. "Inducing visibility and visual deduction," LSE Research Online Documents on Economics 103540, London School of Economics and Political Science, LSE Library.
    6. Dorin, Bruno & Joly, Pierre-Benoît, 2020. "Modelling world agriculture as a learning machine? From mainstream models to Agribiom 1.0," Land Use Policy, Elsevier, vol. 96(C).
    7. Sachie Mizohata & Raynald Jadoul, 2013. "Towards International and Interdisciplinary Research Collaboration for the Measurements of Quality of Life," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 111(3), pages 683-708, May.
    8. Gene Callahan & Andreas Hoffmann, 2017. "Two-Population Social Cycle Theories," Research in the History of Economic Thought and Methodology, in: Including a Symposium on New Directions in Sraffa Scholarship, volume 35, pages 303-321, Emerald Group Publishing Limited.
    9. Michael McLure & Aldo Montesano, 2020. "Extending Edgeworth: Labour Exchange and Production," Economics Discussion / Working Papers 20-08, The University of Western Australia, Department of Economics.
    10. Ramzi Mabsout, 2018. "The Backward Induction Controversy as a Metaphorical Problem," Economic Thought, World Economics Association, vol. 7(1), pages 24-49, March.
    11. Łukasz Hard, 2014. "Models of Mechanisms and their Role in Building Economic Explanations," Ekonomia journal, Faculty of Economic Sciences, University of Warsaw, vol. 37.
    12. Judy L Klein, 2015. "The Cold War Hot House for Modeling Strategies at the Carnegie Institute of Technology," Working Papers Series 19, Institute for New Economic Thinking.
    13. Nicolas Brisset, 2018. "Models as speech acts: the telling case of financial models," Journal of Economic Methodology, Taylor & Francis Journals, vol. 25(1), pages 21-41, January.
    14. Ryan Rumble & Vincent Mangematin, 2015. "Business Model Implementation: The Antecedents of Multi-Sidedness," Grenoble Ecole de Management (Post-Print) hal-01183388, HAL.
    15. Nicola Giocoli, 2016. "Truth or precision? Some reflections on the economists’ failure to predict the financial crisis," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 29(4), pages 371-386, December.
    16. Charles Baden-Fuller & Vincent Mangematin, 2015. "Business Models and Modelling Business Models," Post-Print hal-01183386, HAL.
    17. Asad Zaman & Taseer Salahuddin, 2020. "Models and Reality: How Did Models Divorced from Reality Become Epistemologically Acceptable?," International Econometric Review (IER), Econometric Research Association, vol. 12(1), pages 50-74, April.
    18. Philipp Robinson Rössner, 2019. "Martin Luther and the making of the modern economic mind," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 66(3), pages 233-248, September.
    19. Mohammad Hajigholizadeh & Assefa M. Melesse & Hector R. Fuentes, 2018. "Erosion and Sediment Transport Modelling in Shallow Waters: A Review on Approaches, Models and Applications," IJERPH, MDPI, vol. 15(3), pages 1-24, March.
    20. John Rust, 2014. "The Limits of Inference with Theory: A Review of Wolpin (2013)," Journal of Economic Literature, American Economic Association, vol. 52(3), pages 820-850, September.

    More about this item

    Keywords

    communication theory; control engineering; dynamic programming; information engineering; Kalman filter; rational expectations; Turing machine;
    All these keywords.

    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:use:tkiwps:1923. 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: Marina Muilwijk (email available below). General contact details of provider: https://edirc.repec.org/data/eiruunl.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.