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The Macroeconomics of Self-Fulfilling Prophecies: a review essay

Article Abstract:

Roger Farmer's 'The Macroeconomics of Self-Fulfilling Prophecies' attempts to fill the void left by the absence of insights on self-fulfilling behavior in modern macroeconomic analysis. Stationary stochastic rational expectations equilibrium is analyzed using a representative agent stochastic growth model instead of overlapping generations. The general equilibrium ideas presented are recommended for macroeconomists, who often attribute the failure of the first welfare theorem to market incompleteness.

Rational expectations (Economics)

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Spotting sunspots: some evidence in support of models with self-fulfilling prophecies

Article Abstract:

Prices in financial markets and the behavior of the real variables in the economy collectively mirror the fundamental belief shocks. Employing actual returns from the financial markets and an assessment of the technology shock, the determination of the belief shock and the remaining variables in the model was shown. In all cases, the forecasts from the model had explanatory influence for US time series over and above information included in equity returns by themselves.

Administration of General Economic Programs, Economic Planning & Research, Research, Economic conditions, Business cycles, Sun-spots, Sunspots

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Bounded rationality in macroeconomics: a review essay

Article Abstract:

Tom Sargent's new book 'Bounded Rationality in Macroeconomics' provides a thorough review and discussion of the models of boundedly rational learning behavior. Sargent points out that researchers are motivated to study learning processes because of the problems involved in modelling the transition behavior and dynamics that are inherent in these processes. He also convincingly argues for the continuation of studies on bounded rationality.

Learning, Learning and scholarship, Scholarship (Research), Sargent, Tom

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