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...

This paper combines recent developments in methods for solving and estimating rational expectations dynamic models. These developments are applied to a model of labor-market search, where firms operate under uncertainty. We assess the ability of the structural model to mimic nonlinear features...

The Anderson-Moore algorithm provides a well-established solution method for systems of linear rational expectations equations. The purpose of this paper is to support a wider use of the algorithm by describing two sets of Matlab routines that allow its practical implementation. The emphasis is...

If private sector agents hold rational expectations, they will predict any future policy switches. Discounting the announced optimal policies, if they are not credible, will lead to a response which deprives the government of any incentive to renege on previous announcements and of the benefits...

Data on contestantsÕ choices in Italian Game Show Affari Tuoi are analysed in a way that separates the effect of risk attitude (preferences) from that of beliefs concerning the amount of money that will be offered to contestants in future rounds. The most important issue addressed in the paper...

We examine the small sample properties of tests of rational expectations models. We show using Monte Carlo experiments that these tests can be extremely biased toward rejection for sample sizes typical in applied research. These biases are important when the time series examined are highly...