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Competitio

Vol. 7 No. 1 (2008)
PhD student papers

The conceptual inconsistency of the rational anticipation theory

Published:
2008-06-16
DOI Linkhttps://doi.org/10.21845/comp/2008/1/7
Author
Peter Galbacs
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PDF (Hungarian)
Keywords
rational expectations hypothesis inflation targeting system
How To Cite
Selected Style: APA
Galbacs, P. (2008). The conceptual inconsistency of the rational anticipation theory. Competitio, 7(1), 103-126. https://doi.org/10.21845/comp/2008/1/7
Abstract

In this article we analyse various contradictions in the assumptions and consquences forming the theory of rational expectations. The argument aims to demonstrate that important parts of the theory cannot be maintained at the same time without damaging the theory's logical structure, while we recognize that other parts force the theory far from the basis of reality. However, the rational ecpectations hypothesis is not simply a useless theoretical construct, since by delineating the proper boundaries of this hypothesis we can offer a clear justification for the operability of inflation targeting systems. If we relax the strong presumptions, giving a place to a monetary authority that is able and calculated to drive by Muth, although some consequences of this conception will be consistent with the assumptions - which depend on conditions that seem not to hold - of the original (strong) definition.

Journal of Economic Literature (JEL) codes: B2, E5.

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