Rational Expectations and Inflation: Third Edition - Hardcover

Sargent, Thomas J.

Hardcover

ISBN 10: 0691158703 ISBN 13: 9780691158709

Verlag: Princeton University Press, 2013

Inhaltsangabe

A fully expanded edition of the Nobel Prize–winning economist's classic book

This collection of essays uses the lens of rational expectations theory to examine how governments anticipate and plan for inflation, and provides insight into the pioneering research for which Thomas Sargent was awarded the 2011 Nobel Prize in economics. Rational expectations theory is based on the simple premise that people will use all the information available to them in making economic decisions, yet applying the theory to macroeconomics and econometrics is technically demanding. Here, Sargent engages with practical problems in economics in a less formal, noneconometric way, demonstrating how rational expectations can satisfactorily interpret a range of historical and contemporary events. He focuses on periods of actual or threatened depreciation in the value of a nation's currency. Drawing on historical attempts to counter inflation, from the French Revolution and the aftermath of World War I to the economic policies of Margaret Thatcher and Ronald Reagan, Sargent finds that there is no purely monetary cure for inflation; rather, monetary and fiscal policies must be coordinated.

This fully expanded edition of Rational Expectations and Inflation includes Sargent's 2011 Nobel lecture, "United States Then, Europe Now." It also features new articles on the macroeconomics of the French Revolution and government budget deficits.

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Über die Autorinnen und Autoren

Thomas J. Sargent is professor of economics at New York University. His books include Robustness and The Big Problem of Small Change (both Princeton). He was awarded the 2011 Nobel Prize in economics.

Thomas J. Sargent, winner of 211 Nobel Prize in Economics and William R. Berkley Professor of Economics and Business.

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"Sargent's work on inflation remains central to cutting-edge research in economics as well as to current and momentous policy decisions. Are the United States and Europe headed toward inflation with our large and intractable deficits? Will the European currency union survive? The breakthrough theoretical insights and brilliant case studies in this book are still the foundations that anyone thinking about these questions needs to read, and then to read again."--John H. Cochrane, author ofAsset Pricing

"Rational Expectations and Inflation is a collection of classic articles on the subject, several of which were explicitly cited in the scientific background to Sargent's Nobel Prize. The contribution of this book is great."--Marco Bassetto, Federal Reserve Bank of Chicago

Aus dem Klappentext

"Sargent's work on inflation remains central to cutting-edge research in economics as well as to current and momentous policy decisions. Are the United States and Europe headed toward inflation with our large and intractable deficits? Will the European currency union survive? The breakthrough theoretical insights and brilliant case studies in this book are still the foundations that anyone thinking about these questions needs to read, and then to read again."--John H. Cochrane, author ofAsset Pricing

"Rational Expectations and Inflation is a collection of classic articles on the subject, several of which were explicitly cited in the scientific background to Sargent's Nobel Prize. The contribution of this book is great."--Marco Bassetto, Federal Reserve Bank of Chicago

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Rational Expectations and Inflation

By Thomas J. Sargent

PRINCETON UNIVERSITY PRESS

Copyright © 2013 Princeton University Press
All rights reserved.

ISBN: 978-0-691-15870-9

Contents

List of Figures............................................................
xi
List of Tables.............................................................
xiii
Acknowledgements...........................................................
xv
Preface to the Third Edition...............................................
xvii
Preface to the Second Edition..............................................
xix
Preface to the First Edition...............................................
xxi
1. Rational Expectations and the Reconstruction of Macroeconomics..........
1
2. Reaganomics and Credibility.............................................
17
3. The Ends of Four Big Inflations.........................................
38
4. Stopping Moderate Inflations: The Methods of Poincaré and Thatcher......
111
5. Some Unpleasant Monetarist Arithmetic...................................
162
6. Interpreting the Reagan Deficits........................................
197
7. Speculations about the Speculation Against yhe Hong Kong Dollar.........
211
8. Six Essays in Persuasion................................................
228
9. Macroeconomic Features of the French Revolution.........................
248
10. United States Then, Europe Now.........................................
297
References.................................................................
339
Author Index...............................................................
357
Subject Index..............................................................
361

Excerpt

<h2>CHAPTER 1</h2><p><i>Rational Expectations and theReconstruction of Macroeconomics</i></p><p>The government has strategies. The people havecounterstrategies.</p><p>Ancient Chinese proverb</p><br><p><i>Behavior Changes with the Rules of the Game</i></p><p>In order to provide quantitative advice about the effects of alternativeeconomic policies, economists have constructed collections ofequations known as <i>econometric models</i>. For the most part thesemodels consist of equations that attempt to describe the behavior ofeconomic agents—firms, consumers, and governments—in termsof variables that are assumed to be closely related to their situations.Such equations are often called <i>decision rules</i> because theydescribe the decisions people make about things like consumptionrates, investment rates, and portfolios as functions of variables thatsummarize the information people use to make those decisions.For all of their mathematical sophistication, econometric modelsamount to statistical devices for organizing and detecting patternsin the past behavior of people's decision making, patterns that canthen be used as a basis for predicting their future behavior.</p><p>As devices for extrapolating future behavior from the past undera given set of rules of the game, or government policies, thesemodels appear to have performed well. They have not performedwell, however, when the rules changed. In formulating advice forpolicymakers, economists have routinely used these models to predictthe consequences of historically unprecedented, hypotheticalgovernment interventions that can only be described as changesin the rules of the game. In effect, the models have been manipulatedin a way that amounts to assuming that people's patterns ofbehavior do not depend on those properties of the environmentthat government interventions would change. The assumption hasbeen that people will act under the new rules just as they haveunder the old, so that even under new rules, past behavior is stilla reliable guide to future behavior. Econometric models used inthis way have not been able to predict accurately the consequencesof historically unparalleled interventions. To take one recent example,standard Keynesian and monetarist econometric modelsbuilt in the last 1960s failed to predict the effects on output, employment,and prices that were associated with the unprecedentedlarge deficits and rates of money creation of the 1970s.</p><p>Recent research has been directed at building econometric modelsthat take into account that people's behavior patterns will varysystematically with changes in government policies—the rules ofthe game. Most of this research has been conducted by adherentsof the so-called hypothesis of rational expectations. They modelpeople as making decisions in dynamic settings in the face of well-definedconstraints. Included among these constraints are lawsof motion over time that describe such things as the taxes peoplemust pay and the prices of the goods they buy and sell. The hypothesisof rational expectations is that people understand theselaws of motion. The aim of the research is to build models thatcan predict how people's behavior will change when they are confrontedwith well-understood changes in ways of administeringtaxes, government purchases, aspects of monetary policy, and thelike.</p><br><p>The Investment Decision</p><p>A simple example will illustrate both the principle that decisionrules depend on the laws of motion that agents face and the extentthat standard macroeconomics models have violated this principle.Let <i>k<sub>t</sub></i> be the capital stock of an industry and τ<sub><i>t</i></sub> be a tax rate on capital.Let τ<sub><i>t</i></sub> be the first element of <i>z<sub>t</sub></i>, a vector of current and laggedvariables, including those that the government considers whenit sets the tax rate on capital. We have τ<sub><i>t</i></sub> [equivalent to] <i>e<sup>T</sup>z<sub>t</sub></i>, where <i>e</i> is theunit vector with unity in the first place and zeros elsewhere. Let afirm's optimal accumulation plan require that capital acquisitionsobey</p><p>[MATHEMATICAL EXPRESSION NOT REPRODUCIBLE IN ASCII] (1.1)</p><p>where <i>E<sub>t</sub>τ<sub>t+j</sub></i> is the tax rate at time <i>t</i> that is expected to prevail attime <i>t + j</i>.</p><p>Equation 1.1 captures the notion that the demand for capitalresponds negatively to current and future tax rates....

Details zur Ausgabe

• Verlag: Princeton University Press
• Erscheinungsdatum: 2013
• Sprache: Englisch
• ISBN 10: 0691158703
• ISBN 13: 9780691158709
• Einband: Gebundene Ausgabe
• Auflage: 3
• Anzahl der Seiten: 364
• Kontakt zum Hersteller: Nicht verfügbar
• Verantwortliche Person: Nicht verfügbar