Individual forecasting and aggregate outcomes: 'Rational expectations' examined.

ix, 238 pp. Original cloth. Signature of former owner on front flyleaf, else Near Fine, in near fine dust jacket. Out of print in cloth; in print in paperback at US$43.00. Edmund S. Phelps: Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, 2006, 'for his analysis of intertemporal tradeoffs in macroeconomic policy.' 'Last but not least, positing rational expectations equilibrium is not just inaccurate as a way to close the model in the same sense as postulating rational choice is taken to be inaccurate: It is inappropriate to impose on the model. In a highly innovative economy and thus one subject to change, firms – even firms in the same industry and location – are all thinking differently. So a firm would have no grounds to reason, as it implicitly does in rational-expectations theory, that 'since I have calculated I must raise my wages by x percent, I should now take into account that my competitors are planning to do the same; so I must now adjust my wage increase even more .' This kind of inductive reasoning to arrive at the right expectations is inapplicable. That is the thesis of my piece (Phelps, 1983) in the Frydman-Phelps volume [offered here]' (Phelps, 'Macroeconomics for a Modern Economy', Nobel Lecture, Dec. 8, 2006). Contents: Preface; 1. Introduction Roman Frydman and Edmund S. Phelps; 2. The trouble with 'rational expectations' and the problem of inflation stabilization Edmund S. Phelps; Comment Phillip Cagan; 3. Expectations of others' expectations and the transitional nonneutrality of fully believed systematic monetary policy Juan Carlos Di Tata; Comment Clive Bull; 4. The stability of rational expectations in macroeconomic models George Evans; Comment Guillermo A. Calvo; 5. Individual rationality, decentralization, and the rational expectations hypothesis Roman Frydman; 6. Convergence to rational expectations equilibrium Margaret Bray; Comment Roy Radner; 7. A distinction between the unconditional expectational equilibrium and the rational expectations equilibrium Roman Frydman; 8. On mistaken beliefs and resultant equilibria Alan Kirman; Comment Jerry Green; 9. Equilibrium theory with learning and disparate expectations: some issues and methods Robert M. Townsend; Comment John B. Taylor; 10. Keynesianism, monetarism, and rational expectations: some reflections and conjectures Axel Leijonhufvud; Comment Frank Hahn; Index.