Abstract
Rational expectations require more information than adaptive expectations and thus must be more costly. In a standard macro model the losses associated with adaptive expectations are shown to be very small indeed, even for quite large monetary disturbances. As a result adaptive expectations may be close to optimal, as long as the monetary regime is relatively stable. Further, with adaptive expectations, fully anticipated monetary changes lead to large and persistent fluctuations in aggregate output. This is true even if only a very small percentage of firms behave adaptively.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
