We characterize the divergence between in informational and economic efficiency in a rational expectations competitive market with asymmetric information about the costs of production. We find that prices may contain too much or too little information with respect o incentive efficient...

This paper performs a welfare analysis of economies with private information when public information is endogenously generated and agents can condition on noisy public statistics in the rational expectations tradition. We find that equilibrium is not (restricted) efficient even when feasible...

We develop an estimated model of the US economy in which agents form expectations by continually updating their beliefs regarding the behaviour of the economy and monetary policy. We explore the effects of policy-makers' misperceptions of the natural rate of unemployment during the late 1960s...

New-Keynesian models are characterized by the presence of expectations as explanatory variables. To use these models for policy evaluation, the econometrician must estimate the parameters of expectation terms. Standard estimation methods have several drawbacks, including possible lack of...

The paper addresses the Kydland and Prescott (1977) argument that the optimal policy in models with rational expectations is time-inconsistent. This, it is argued, undermines the credibility of the optimal policy in the eyes of the private sector, who will expect the policy-maker to reoptimize....

The study analyses the characteristics of professional exchange rate forecasts for the €/US$ rate. The results indicate that the quality of forecasts produced by professional economists is rather poor and incompatible with the rational expectations hypothesis. This dismal result is according...

This survey essay considers how rational expectations have changed our evaluation of monetary policy. In the first section, various underpinnings of the "Phillips curve" relation between inflation and output are reviewed. All are concluded to be products of particular institutional set-ups whose...

This paper investigates the relation between the dynamics of inflation and international monetary and exchange rate regimes in the industrial economies. It demonstrates that fixed exchange rate regimes like the international gold standard and the Bretton Woods gold dollar standard appear to be...

This paper proposes and applies to the London Business School (LBS) model a general methodology for the design of macroeconomic policy using large rational expectations models. Design proceeds through the following four stages: first, a small, linear representation of the original large,...

From 1970 to 1985, Israel experienced high inflation. It rose in three jumps to new plateaus and eventually exceeded 400% per annum. This paper claims that anticipated monetary and fiscal effects of a massive government bailout of owners of fallen bank shares caused the last big jump in...