Macroeconomic Analysis Without the Rational Expectations Hypothesis

Posted: 7 Aug 2013

See all articles by Michael Woodford

Michael Woodford

Columbia University, Graduate School of Arts and Sciences, Department of Economics

Date Written: January 2013

Abstract

The article presents a temporary equilibrium framework for macroeconomic analysis that allows for a wide range of possible specifications of expectations but reduces to a standard new Keynesian model in the limiting case of rational expectations. This common framework is then used to contrast the assumptions and implications of several different ways of relaxing the assumption of rational expectations. As an illustration of the method, the implications of alternative assumptions for the selection of a monetary policy rule are discussed. Other issues treated include the conditions required for Ricardian equivalence and for existence of a deflation trap.

Suggested Citation

Woodford, Michael, Macroeconomic Analysis Without the Rational Expectations Hypothesis (January 2013). Annual Review of Economics, Vol. 5, pp. 303-346, 2013, Available at SSRN: https://ssrn.com/abstract=2306879 or http://dx.doi.org/10.1146/annurev-economics-080511-110857

Michael Woodford (Contact Author)

Columbia University, Graduate School of Arts and Sciences, Department of Economics ( email )

420 W. 118th Street
New York, NY 10027
United States

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