1.1. Foundations. von Neumann and Morgenstern (1944), Savage (1954), and Muth (1961) created mathematical foundations that applied economists have used to construct quantitative dynamic models for policy making. These foundations give modern dynamic models an internal coherence that lead to sharp empirical predictions. When we acknowledge that models are approximations, logical problems emerge ...

An Example of Convergence to Rational Expectations with Heterogeneous Beliefs Author(s): Mark Feldman Source: International Economic Review, Vol. 28, No. 3 (Oct., 1987), pp. 635-650 Published by: Blackwell Publishing for the Economics Department of the University of Pennsylvania and Institute of Social and Economic Research -Osaka University Stable URL: http://www.jstor.org/stable/2526571 Acces...

Central banks pay close attention to inflation expectations. In standard models, however, inflation expectations are tied down by the assumption of rational expectations and should be of little independent interest to policy makers. In this paper, we relax the assumption of rational expectations with perfect knowledge and reexamine the role of inflation expectations in the economy and in the co...

We analyse the role of mass violent conflict in influencing individual expectations. We hypothesise that individuals are likely to report negative expectations if they were exposed to conflict events in the past. We combine individual and household level data from the Northern Uganda Livelihood Survey of 2007 with a disaggregated conflict exposure index based on the Armed Conflict Locations Eve...

The rational expectations equilibrium has been criticized as an equilibrium concept in market game environments. Such an equilibrium may not exist generically, or it may introduce unrealistic assumptions about an economic agent's knowledge or computational ability. We define a rational expectations equilibrium as a probability measure over uncertain states of nature which exploits all available...

A rapidly growing empirical literature seeks to estimate the costs of future climate change from time series variation in weather. I formally analyze the consequences of a change in climate for economic outcomes. I show that those consequences are driven by changes in the distribution of realized weather and by expectations channels that capture how anticipated changes in the distribution of we...

We analyse the role of mass violent conflict in influencing individual expectations. We hypothesise that individuals are likely to report negative expectations if they were exposed to conflict events in the past. We combine individual and household level data from the Northern Uganda Livelihood Survey of 2007 with a disaggregated conflict exposure index based on the Armed Conflict Locations Eve...

The expectations hypothesis is violated in the U.S. nominal term structure of interest rates. This so-called ”expectations puzzle” can be captured by some descriptive models of the term structure with time-varying risk premium. This paper provides an economic explanation for the success of these reduced-form specifications of pricing kernels. Specifically, we show that a consumption-based asset...