A REFORMULATION OF THE EXPECTATIONS HYPOTHESIS FOR KEYNESIAN ECONOMICS

Jagdish Handa

Chapter 7 in A Reformulation of Keynesian Economics, 2015, pp 363-411 from World Scientific Publishing Co. Pte. Ltd.

Abstract: Macroeconomic theories often involve the expected future values of some variable or other. This is especially so for theories with intertemporal optimization, which include the expected values for several short terms in the future. This chapter explores the hypotheses relevant to the formation of such expected values for use in macroeconomic modeling. The current state of economics does not have a consensus on which expectations hypothesis (EH) is the appropriate one for macroeconomic analysis.Among the EH offered in the literature, the most popular one is that labeled as the rational expectations hypothesis (REH). This chapter examines the differences among the EH currently popular in economics in the classical and Keynesian paradigms and reflects on their rationality and validity. It then goes on to suggest an EH that is more consistent with the spirit of Keynes (1936) the Keynesian tradition and our reformulation of Keynesian economics…

Keywords: Macroeconomics; Keynesian Economics; Monetary Economics (search for similar items in EconPapers)
Date: 2015
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