Rational Expectations and Economic Policy
Journal title STUDI ECONOMICI
Author/s Nicola Acocella
Publishing Year 2010 Issue 2010/100
Language English Pages 10 P. 9-18 File size 507 KB
DOI 10.3280/STE2010-100002
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The introduction of rational expectations in the 1970s undermined the classical theory of economic policy laid down by Tinbergen, Theil and others. Since then rational expectations are often used as a strong argument against policy activism. However, rational expectations do not always imply policy invariance, although sometimes it happens. In fact, in certain circumstances rational expectations can enhance the policymaker’s power to control an economy over time. The new theory of economic policy in a strategic context not only overcomes the Lucas critique, but states the conditions under which policymakers can be fooled by a private sector having rational expectations or, on the contrary, can manage such expectations to enhance their power to control the system.
Keywords: Rational expectations, controllability, policy neutrality, monetary policy, fiscal policy
Jel codes: C61, C62, E52, E61, E62
Nicola Acocella, Rational Expectations and Economic Policy in "STUDI ECONOMICI " 100/2010, pp 9-18, DOI: 10.3280/STE2010-100002