This paper presents simple models with competitive markets, fully flexible prices and fully observable macro-economic variables. Agents hold heterogeneous beliefs because the exogenous shocks are stable but non-stationary and the true law of motion is unknown to agents. We show that the...

The Rational Beliefs Theory is founded on the observation that in most situations the same data may be rationally explained (in terms of a statistical model) in many different ways. This is obvious in a world where there is a limited number of observations. The novel idea of the Rational Beliefs...

The Rational Beliefs Theory is founded on the observation that in most situations the same data may be rationally explained (in terms of a statistical model) in many different ways. This is obvious in a world where there is a limited number of observations. The novel idea of the Rational Beliefs...

Today’s demand for social insurance is supported by economic reasoning showing that private insurance markets do not provide efficient coverage for medical insurance, for inter-generational risk sharing and for income instability. It is unfashionable to say but government intervention in these...