A Disequilibrium Model of Rational Expectations for the U.K

B. Rao and Virendra K Srivastava

Economic Journal, 1991, vol. 101, issue 407, 877-86

Abstract: So far the new classical model and the policy ineffectiveness proposition have been tested essentially within an equilibrium framework and disequilibrium methods of estimation have been used to estimate the labor-market models. In this paper, the authors develop an aggregate goods market model for the United Kingdom in which the new classical rational expectations hypothesis and the disequilibrium approach are integrated. Their estimates of the model show that the structural parameters are well determined and price adjustment in the United Kingdom is very sluggish. Therefore, the new classical policy ineffectiveness proposition is not valid for the United Kingdom. Copyright 1991 by Royal Economic Society.

Date: 1991
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