Macroeconomics after a Decade of Rational Expectations: Some Critical Issues

33 Pages Posted: 9 Jun 2004

See all articles by Bennett T. McCallum

Bennett T. McCallum

Carnegie Mellon University - David A. Tepper School of Business; National Bureau of Economic Research (NBER)

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Date Written: December 1982

Abstract

The main section of this paper discusses competing theories of aggregate supply that are currently being utilized in macroeconomic models with rational expectations. The distinction between flexible-price equilibrium models and models with nominal contracts is emphasized and three models of the latter type are described and contrasted, it is argued that rejection of flexible-price equilibrium theories, as the evidence seems to warrant,does not require abandonment of the equilibrium approach. Also included are remarks on the present status of the rational expectations version of the natural-rate hypothesis. The second section of the paper briefly discusses a few issues concerning the equilibrium approach and aggregate demand, with attention devoted to the overlapping-generations framework. The third section considers a recent attempt, involving the use of "vector autoregression"models, to denigrate the importance of the Lucas critique of traditional policy-evaluation procedures.

Suggested Citation

McCallum, Bennett T., Macroeconomics after a Decade of Rational Expectations: Some Critical Issues (December 1982). NBER Working Paper No. w1050, Available at SSRN: https://ssrn.com/abstract=304782

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