The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Rational Expectations

  • Thomas J. Sargent
Reference work entry


Rational expectations is an equilibrium concept that attributes a common model (a joint probability distribution over exogenous variables and outcomes) to nature and to all agents in the model. The rational expectations equilibrium concept makes parameters describing agents’ belief disappear as components of a model, giving rise to the cross-equation restrictions that offer rational expectations models their empirical power.


Adaptive expectations Cobweb theorem Computatuion of equolibria Consumer surplus Corn-hog cycles Curse of dimensionality Distributed lags Euler equations Forecasting Generalized method of moments Identification Lagrange multipliers Linear prediction theory Markov chain Monte Carlo methods Markov processes Maximum likelihood Muth, J. F. Ommitment Ordinary differential equations Producer surplus Rational expectations Rational expectations equilibrium Real business cycles Reputation Self-confirming equilibria Shadow pricing Stochastic approximation Stochastic optimal growth models Time consistency 

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© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Thomas J. Sargent
    • 1
  1. 1.