Rational Expectations and Econometric Practice, Volume 2

Assumptions about how people form expectations for the future shape the properties of any dynamic economic model. To make economic decisions in an uncertain environment people must forecast such variables as future rates of inflation, tax rates, government subsidy schemes and regulations. The doctrine of rational expectations uses standard economic methods to explain how those expectations are formed.

This work collects the papers that have made significant contributions to formulating the idea of rational expectations. Most of the papers deal with the connections between observed economic behavior and the evaluation of alternative economic policies.

Robert E. Lucas Jr is a professor of economics at the University of Chicago, and was awarded a Nobel Price in Economics in 1995.Thomas J. Sargent is the Berkley Professor of Economics and Business at New York University.