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In 1973, Thomas J Sargent published the article “Rational Expectations, the Real Rate of Interest, and the Natural Rate of Unemployment” which was an important contribution to the development and application of the concept of rational expectations in economic theory and policy. By assuming individuals are forward-looking and rational ...
He is "the father of the rational expectations revolution in economics", primarily due to his article "Rational Expectations and the Theory of Price Movements" from 1961. Muth earned his PhD in mathematical economics from Carnegie Mellon University, and was in 1954 the first recipient of the Alexander Henderson Award. He was affiliated with ...
The Lucas islands model is an economic model of the link between money supply and price and output changes in a simplified economy using rational expectations. It delivered a new classical explanation of the Phillips curve relationship between unemployment and inflation. The model was formulated by Robert Lucas, Jr. in a series of papers in the ...
Widely regarded as the central figure in the development of the new classical approach to macroeconomics, [1] he received the Nobel Memorial Prize in Economic Sciences in 1995 "for having developed and applied the hypothesis of rational expectations, and thereby having transformed macroeconomic analysis and deepened our understanding of ...
The rational expectations theory said that expectations of inflation were equal to what actually happened, with some minor and temporary errors. This, in turn, suggested that the short-run period was so short that it was non-existent: any effort to reduce unemployment below the NAIRU, for example, would immediately cause inflationary ...
In 1975 he and Wallace proposed the policy-ineffectiveness proposition, which challenged a basic assumption of Keynesian economics. Sargent went on to refine or extend rational expectations reasoning by further: studying the conditions under which systems with bounded rationality of agents and adaptive learners converge to rational expectations.
Imagine there's a game where one person is placed in a room and assigned the role of the "sender." A second person in a different room is assigned the role of "receiver." The sender is given $20 ...
The first wave of New Keynesian economics developed in the late 1970s. The first model of Sticky information was developed by Stanley Fischer in his 1977 article, Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule. [6] He adopted a "staggered" or "overlapping" contract model.