How the Rational Expectations Revolution has Changed Macroeconomic Policy Research

John Taylor

Chapter 5 in Advances in Macroeconomic Theory, 2001, pp 79-96 from Palgrave Macmillan

Abstract: Abstract The rational expectations hypothesis is by far the most common expectations assumption used in macroeconomic research today. This hypothesis, which simply states that people’s expectations are the same as the forecasts of the model being used to describe those people, was first put forth and used in models of competitive product markets by John Muth in the 1960s. But it was not until the early 1970s that Robert Lucas (1972, 1976) incorporated the rational expectations assumption into macroeconomics and showed how to make it operational mathematically. The ‘rational expectations revolution’ is now as old as the Keynesian revolution was when Robert Lucas first brought rational expectations to macroeconomics.

Keywords: Interest Rate; Monetary Policy; Central Bank; Federal Reserve; Rational Expectation (search for similar items in EconPapers)
Date: 2001
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DOI: 10.1057/9780333992753_5

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