rational expectations

Thomas J. Sargent
From The New Palgrave Dictionary of Economics, Second Edition, 2008
Edited by Steven N. Durlauf and Lawrence E. Blume
Alternate versions available: 1987 Edition
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Abstract

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.
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How to cite this article

Sargent, Thomas J. "rational expectations." The New Palgrave Dictionary of Economics. Second Edition. Eds. Steven N. Durlauf and Lawrence E. Blume. Palgrave Macmillan, 2008. The New Palgrave Dictionary of Economics Online. Palgrave Macmillan. 11 December 2017 <http://www.dictionaryofeconomics.com/article?id=pde2008_R000025> doi:10.1057/9780230226203.1388

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