Lucas’ Expectational Equilibrium, Price Rigidity, and Descriptive Realism

Center for the History of Political Economy at Duke University Working Paper Series, 2021-17

51 Pages Posted: 13 Sep 2021 Last revised: 22 Jan 2022

Date Written: September 8, 2021

Abstract

Robert Lucas’ 1972 article on the neutrality of money represented the first effective challenge to Samuelson’s neoclassical synthesis methodological separation between static microeconomic optimization and macroeconomic dynamics. Lucas rejected disequilibrium price dynamics, as expressed by the Walrasian tâtonnement and auctioneer mechanisms. Lucas’ new treatment of equilibrium as an expectational concept, determined by the rational behaviour of information processing agents, was not restricted to market clearing competitive economies. Lucas’ effort to compare alternative rational expectations models of price stickiness (including his 1972 original formulation) led him to stress the notion of “descriptive realism” of the models’ main assumptions, which played an important role in his original discussion of model robustness.

Keywords: Robert Lucas, economic dynamics, expectational equilibrium, price rigidity, descriptive realism

JEL Classification: B22, B41, E32

Suggested Citation

Boianovsky, Mauro, Lucas’ Expectational Equilibrium, Price Rigidity, and Descriptive Realism (September 8, 2021). Center for the History of Political Economy at Duke University Working Paper Series, 2021-17, Available at SSRN: https://ssrn.com/abstract=3919939 or http://dx.doi.org/10.2139/ssrn.3919939

Mauro Boianovsky (Contact Author)

Universidade de Brasilia ( email )

Brasilia, DF 70910-900
Brazil

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