Brake: Difference between revisions
A clutch is hardly the opposite to a brake |
en>WPGA2345 m Fixing links to disambiguation pages (page is nominated for disambiguation), replaced: undercarriage → undercarriage using AWB |
||
| Line 1: | Line 1: | ||
{{Other uses|Rational (disambiguation){{!}}Rational}} | |||
{{More footnotes|date=November 2009}} | |||
{{Economics sidebar}} | |||
'''Rational expectations''' is a hypothesis in [[economics]] which states that agents' predictions of the future value of economically relevant variables are not systematically wrong in that all errors are [[white noise|random]]. Equivalently, this is to say that agents' [[Expectation (epistemic)|expectations]] equal true [[statistics|statistical]] [[expected value]]s. An alternative formulation is that rational expectations are '''model-consistent expectations''', in that the agents inside the model assume the model's predictions are valid.<ref>Snowdon, B., Vane, H., & Wynarczyk, P. (1994). A modern guide to macroeconomics. (pp. 236–79). Cambridge: Edward Elgar Publishing Limited.</ref> The rational expectations assumption is used in many contemporary [[macroeconomic model]]s, [[game theory]] and applications of [[rational choice theory]]. | |||
Since most macroeconomic models today study decisions over many periods, the expectations of workers, consumers and firms about future economic conditions are an essential part of the model. How to model these expectations has long been controversial, and it is well known that the macroeconomic predictions of the model may differ depending on the assumptions made about expectations (see [[Cobweb model]]). To assume rational expectations is to assume that [[Agent (economics)|agents]]' expectations may be wrong, but are correct ''on average'' over time. In other words, although the future is not fully predictable, agents' expectations are assumed not to be systematically [[Bias (statistics)|biased]] and use all relevant information in forming expectations of economic variables. | |||
This way of modeling expectations was originally proposed by [[John Muth|John F. Muth]] (1961)<ref>{{Cite journal|author=Muth, John F.|year=1961|title=Rational Expectations and the Theory of Price Movements|journal=Econometrica|volume=29|issue=3|pages=315–335|url=http://www.parisschoolofeconomics.eu/docs/guesnerie-roger/muth61.pdf|doi=10.2307/1909635}} reprinted in {{Cite book|editor=Hoover, Kevin D.|title=The New Classical Macroeconomics, Volume 1|year=1992|pages=3–23|series=International Library of Critical Writings in Economics, vol. 19|location=Aldershot, Hants, England|publisher=Elgar|isbn=978-1-85278-572-7}}</ref> and later became influential when it was used by [[Robert Lucas, Jr.]] and others. Modeling expectations is crucial in all models which study how a large number of individuals, firms and organizations make choices under uncertainty. For example, negotiations between workers and firms will be influenced by the expected level of [[inflation]], and the value of a share of stock is dependent on the expected future income from that stock. | |||
==Theory== | |||
Rational expectations theory defines this kind of expectations as being identical to the ''best guess of the future'' (the optimal forecast) that uses all available information. Thus, it is assumed that outcomes that are being forecast do not differ systematically from the market [[economic equilibrium|equilibrium]] results. As a result, rational expectations do not differ systematically or predictably from equilibrium results. That is, it assumes that people do not make systematic errors when predicting the future, and deviations from ''perfect foresight'' are only random. In an economic model, this is typically modelled by assuming that the expected value of a variable is equal to the expected value predicted by the model. | |||
For example, suppose that ''P'' is the equilibrium price in a simple market, determined by [[supply and demand]]. The theory of rational expectations says that the actual price will only deviate from the expectation if there is an 'information shock' caused by information unforeseeable at the time expectations were formed. In other words ''[[ex ante]]'' the price is anticipated to equal its rational expectation: | |||
::<math>P=P^*+\epsilon</math> | |||
::<math>E[P]=P^*</math> | |||
where <math>P^*</math> is the rational expectation and <math>\epsilon</math> is the random error term, which has an expected value of zero, and is independent of <math>P^*</math>. | |||
Rational expectations theories were developed in response to perceived flaws in theories based on [[adaptive expectations]]. Under adaptive expectations, expectations of the future value of an economic variable are based on past values. For example, people would be assumed to predict inflation by looking at inflation last year and in previous years. Under adaptive expectations, if the economy suffers from constantly rising inflation rates (perhaps due to government policies), people would be assumed to always underestimate inflation. Many economists have regarded this as unrealistic, believing that rational individuals would sooner or later realize the trend and take it into account in forming their expectations. | |||
The hypothesis of rational expectations addresses this criticism by assuming that individuals take all available information into account in forming expectations. Though expectations may turn out incorrect, they will not deviate systematically from the realized values. | |||
The rational expectations hypothesis has been used to support some strong conclusions about economic policymaking. An example is the [[Policy Ineffectiveness Proposition]] developed by [[Thomas Sargent]] and [[Neil Wallace]]. If the Federal Reserve attempts to lower unemployment through expansionary [[monetary policy]] economic agents will anticipate the effects of the change of policy and raise their expectations of future inflation accordingly. This in turn will counteract the expansionary effect of the increased money supply. All that the government can do is raise the inflation rate, not employment. This is a distinctly [[New classical macroeconomics|New Classical]] outcome. During the 1970s rational expectations appeared to have made previous macroeconomic theory largely obsolete, which culminated with the [[Lucas critique]]. However, rational expectations theory has been widely adopted as a modelling assumption even outside of New Classical macroeconomics thanks to the work of [[New Keynesian]]s such as [[Stanley Fischer]]. | |||
Rational expectations theory is the basis for the [[efficient-market hypothesis|efficient market theories]]. If a security's price does not reflect all the information about it, then there exist "unexploited profit opportunities": someone can buy (or sell) the security to make a profit, thus driving the price toward equilibrium. In the strongest versions of these theories, where all profit opportunities ''have been'' exploited, all prices in financial markets are correct and reflect [[Fundamental analysis|market fundamentals]] (such as future streams of profits and dividends). Each financial investment is as good as any other, while a security's price reflects all information about its intrinsic value. | |||
== Criticisms == | |||
The models of Muth and Lucas (and the strongest version of the [[efficient-market hypothesis]]) assume that at any specific time, a market or the economy has ''only one'' equilibrium (which was determined ahead of time), so that people form their expectations around this unique equilibrium.{{Citation needed|date=January 2008}} Muth's math (sketched above) assumed that ''P*'' was unique. Lucas assumed that equilibrium corresponded to a unique "[[full employment]]" level ([[potential output]]) – corresponding to a unique [[NAIRU]] or [[natural rate of unemployment]]. If there is more than one possible equilibrium at any time then the more interesting implications of the theory of rational expectations do not apply. In fact, expectations would determine the nature of the equilibrium attained, reversing the line of causation posited by rational expectations economists. | |||
A further problem relates to the application of the rational expectations hypothesis to aggregate behavior. It is well known that assumptions about individual behavior do not carry over to aggregate behavior ([[Sonnenschein-Mantel-Debreu theorem]]). The same holds true for rationality assumptions: Even if all individuals have rational expectations, the representative household describing these behaviors may exhibit behavior that does not satisfy rationality assumptions (Janssen 1993). Hence the rational expectations hypothesis, as applied to the representative household, is unrelated to the presence or absence of rational expectations on the micro level and lacks, in this sense, a microeconomic foundation. | |||
It can be argued that it is difficult to apply the standard [[efficient-market hypothesis]] (efficient market theory) to understand the [[stock market bubble]] that ended in 2000 and collapsed thereafter; however, advocates{{Who|date=October 2011}} of rational expectations say that the problem of ascertaining all the pertinent effects of the stock-market crash is a great challenge.{{Citation needed|date=October 2011}} | |||
Furthermore, [[social scientists]] in general criticize the movement of this theory into other fields such as [[political science]]. In his book ''[[Essence of Decision]],'' political scientist [[Graham T. Allison]] specifically attacked the rational expectations theory. | |||
Some economists now use the [[adaptive expectations]] model, but then complement it with ideas based on the rational expectations theory. For example, an anti-inflation campaign by the central bank is more effective if it is seen as "credible," ''i.e.,'' if it convinces people that it will "stick to its guns." The bank can convince people to lower their inflationary expectations, which implies less of a feedback into the actual inflation rate. (An advocate of Rational Expectations would say, rather, that the pronouncements of central banks are facts that must be incorporated into one's forecast because central banks can act independently). Those studying financial markets similarly apply the efficient-markets hypothesis but keep the existence of exceptions in mind. | |||
== See also == | |||
* [[Adaptive expectations]] | |||
* [[Behavioral economics]] | |||
* [[Dynamic stochastic general equilibrium]] | |||
* [[Game theory]] | |||
* [[Lucas aggregate supply function]] | |||
* [[Lucas critique]] | |||
* [[Lucas island model]] | |||
* [[Rationality]] | |||
==Notes== | |||
{{Reflist}} | |||
== References == | |||
* Maarten C. W. Janssen (1993) "Microfoundations: A Critical Inquiry". Routledge. | |||
* Hanish C. Lodhia (2005) "The Irrationality of Rational Expectations – An Exploration into Economic Fallacy". 1st Edition, Warwick University Press, UK. | |||
* [[John Muth|John F. Muth]] (1961) "Rational Expectations and the Theory of Price Movements" reprinted in ''The new classical macroeconomics. Volume 1.'' (1992): 3–23 (International Library of Critical Writings in Economics, vol. 19. Aldershot, UK: Elgar.) | |||
* [[Thomas J. Sargent]] (1987). "Rational expectations," ''[[The New Palgrave: A Dictionary of Economics]]'', v. 4, pp. 76–79. | |||
* N.E. Savin (1987). "Rational expectations: econometric implications," ''[[The New Palgrave: A Dictionary of Economics]]'', v. 4, pp. 79–85. | |||
== External links == | |||
* {{cite encyclopedia |last1=Sargent |first1=Thomas J. |authorlink1= Thomas Sargent |last2= |first2= |authorlink2= |editor= [[David R. Henderson]] (ed.) |encyclopedia=[[Concise Encyclopedia of Economics]] |title=Rational Expectations |url=http://www.econlib.org/library/Enc/RationalExpectations.html |year=2008 |edition= 2nd |publisher=[[Library of Economics and Liberty]] |location=Indianapolis |isbn=978-0865976658 |oclc=237794267}} | |||
{{economics}} | |||
[[Category:Macroeconomics]] | |||
[[Category:New classical macroeconomics]] | |||
[[Category:Rational choice theory]] | |||
Revision as of 03:53, 29 January 2014
I'm Fernando (21) from Seltjarnarnes, Iceland.
I'm learning Norwegian literature at a local college and I'm just about to graduate.
I have a part time job in a the office.
my site; wellness [continue reading this..]
Template:More footnotes
Template:Economics sidebar
Rational expectations is a hypothesis in economics which states that agents' predictions of the future value of economically relevant variables are not systematically wrong in that all errors are random. Equivalently, this is to say that agents' expectations equal true statistical expected values. An alternative formulation is that rational expectations are model-consistent expectations, in that the agents inside the model assume the model's predictions are valid.[1] The rational expectations assumption is used in many contemporary macroeconomic models, game theory and applications of rational choice theory.
Since most macroeconomic models today study decisions over many periods, the expectations of workers, consumers and firms about future economic conditions are an essential part of the model. How to model these expectations has long been controversial, and it is well known that the macroeconomic predictions of the model may differ depending on the assumptions made about expectations (see Cobweb model). To assume rational expectations is to assume that agents' expectations may be wrong, but are correct on average over time. In other words, although the future is not fully predictable, agents' expectations are assumed not to be systematically biased and use all relevant information in forming expectations of economic variables.
This way of modeling expectations was originally proposed by John F. Muth (1961)[2] and later became influential when it was used by Robert Lucas, Jr. and others. Modeling expectations is crucial in all models which study how a large number of individuals, firms and organizations make choices under uncertainty. For example, negotiations between workers and firms will be influenced by the expected level of inflation, and the value of a share of stock is dependent on the expected future income from that stock.
Theory
Rational expectations theory defines this kind of expectations as being identical to the best guess of the future (the optimal forecast) that uses all available information. Thus, it is assumed that outcomes that are being forecast do not differ systematically from the market equilibrium results. As a result, rational expectations do not differ systematically or predictably from equilibrium results. That is, it assumes that people do not make systematic errors when predicting the future, and deviations from perfect foresight are only random. In an economic model, this is typically modelled by assuming that the expected value of a variable is equal to the expected value predicted by the model.
For example, suppose that P is the equilibrium price in a simple market, determined by supply and demand. The theory of rational expectations says that the actual price will only deviate from the expectation if there is an 'information shock' caused by information unforeseeable at the time expectations were formed. In other words ex ante the price is anticipated to equal its rational expectation:
where is the rational expectation and is the random error term, which has an expected value of zero, and is independent of .
Rational expectations theories were developed in response to perceived flaws in theories based on adaptive expectations. Under adaptive expectations, expectations of the future value of an economic variable are based on past values. For example, people would be assumed to predict inflation by looking at inflation last year and in previous years. Under adaptive expectations, if the economy suffers from constantly rising inflation rates (perhaps due to government policies), people would be assumed to always underestimate inflation. Many economists have regarded this as unrealistic, believing that rational individuals would sooner or later realize the trend and take it into account in forming their expectations.
The hypothesis of rational expectations addresses this criticism by assuming that individuals take all available information into account in forming expectations. Though expectations may turn out incorrect, they will not deviate systematically from the realized values.
The rational expectations hypothesis has been used to support some strong conclusions about economic policymaking. An example is the Policy Ineffectiveness Proposition developed by Thomas Sargent and Neil Wallace. If the Federal Reserve attempts to lower unemployment through expansionary monetary policy economic agents will anticipate the effects of the change of policy and raise their expectations of future inflation accordingly. This in turn will counteract the expansionary effect of the increased money supply. All that the government can do is raise the inflation rate, not employment. This is a distinctly New Classical outcome. During the 1970s rational expectations appeared to have made previous macroeconomic theory largely obsolete, which culminated with the Lucas critique. However, rational expectations theory has been widely adopted as a modelling assumption even outside of New Classical macroeconomics thanks to the work of New Keynesians such as Stanley Fischer.
Rational expectations theory is the basis for the efficient market theories. If a security's price does not reflect all the information about it, then there exist "unexploited profit opportunities": someone can buy (or sell) the security to make a profit, thus driving the price toward equilibrium. In the strongest versions of these theories, where all profit opportunities have been exploited, all prices in financial markets are correct and reflect market fundamentals (such as future streams of profits and dividends). Each financial investment is as good as any other, while a security's price reflects all information about its intrinsic value.
Criticisms
The models of Muth and Lucas (and the strongest version of the efficient-market hypothesis) assume that at any specific time, a market or the economy has only one equilibrium (which was determined ahead of time), so that people form their expectations around this unique equilibrium.Potter or Ceramic Artist Truman Bedell from Rexton, has interests which include ceramics, best property developers in singapore developers in singapore and scrabble. Was especially enthused after visiting Alejandro de Humboldt National Park. Muth's math (sketched above) assumed that P* was unique. Lucas assumed that equilibrium corresponded to a unique "full employment" level (potential output) – corresponding to a unique NAIRU or natural rate of unemployment. If there is more than one possible equilibrium at any time then the more interesting implications of the theory of rational expectations do not apply. In fact, expectations would determine the nature of the equilibrium attained, reversing the line of causation posited by rational expectations economists.
A further problem relates to the application of the rational expectations hypothesis to aggregate behavior. It is well known that assumptions about individual behavior do not carry over to aggregate behavior (Sonnenschein-Mantel-Debreu theorem). The same holds true for rationality assumptions: Even if all individuals have rational expectations, the representative household describing these behaviors may exhibit behavior that does not satisfy rationality assumptions (Janssen 1993). Hence the rational expectations hypothesis, as applied to the representative household, is unrelated to the presence or absence of rational expectations on the micro level and lacks, in this sense, a microeconomic foundation.
It can be argued that it is difficult to apply the standard efficient-market hypothesis (efficient market theory) to understand the stock market bubble that ended in 2000 and collapsed thereafter; however, advocatesTemplate:Who of rational expectations say that the problem of ascertaining all the pertinent effects of the stock-market crash is a great challenge.Potter or Ceramic Artist Truman Bedell from Rexton, has interests which include ceramics, best property developers in singapore developers in singapore and scrabble. Was especially enthused after visiting Alejandro de Humboldt National Park.
Furthermore, social scientists in general criticize the movement of this theory into other fields such as political science. In his book Essence of Decision, political scientist Graham T. Allison specifically attacked the rational expectations theory.
Some economists now use the adaptive expectations model, but then complement it with ideas based on the rational expectations theory. For example, an anti-inflation campaign by the central bank is more effective if it is seen as "credible," i.e., if it convinces people that it will "stick to its guns." The bank can convince people to lower their inflationary expectations, which implies less of a feedback into the actual inflation rate. (An advocate of Rational Expectations would say, rather, that the pronouncements of central banks are facts that must be incorporated into one's forecast because central banks can act independently). Those studying financial markets similarly apply the efficient-markets hypothesis but keep the existence of exceptions in mind.
See also
- Adaptive expectations
- Behavioral economics
- Dynamic stochastic general equilibrium
- Game theory
- Lucas aggregate supply function
- Lucas critique
- Lucas island model
- Rationality
Notes
43 year old Petroleum Engineer Harry from Deep River, usually spends time with hobbies and interests like renting movies, property developers in singapore new condominium and vehicle racing. Constantly enjoys going to destinations like Camino Real de Tierra Adentro.
References
- Maarten C. W. Janssen (1993) "Microfoundations: A Critical Inquiry". Routledge.
- Hanish C. Lodhia (2005) "The Irrationality of Rational Expectations – An Exploration into Economic Fallacy". 1st Edition, Warwick University Press, UK.
- John F. Muth (1961) "Rational Expectations and the Theory of Price Movements" reprinted in The new classical macroeconomics. Volume 1. (1992): 3–23 (International Library of Critical Writings in Economics, vol. 19. Aldershot, UK: Elgar.)
- Thomas J. Sargent (1987). "Rational expectations," The New Palgrave: A Dictionary of Economics, v. 4, pp. 76–79.
- N.E. Savin (1987). "Rational expectations: econometric implications," The New Palgrave: A Dictionary of Economics, v. 4, pp. 79–85.
External links
My name is Dorris Bosanquet but everybody calls me Dorris. I'm from Iceland. I'm studying at the university (3rd year) and I play the Bass Guitar for 5 years. Usually I choose music from my famous films ;).
I have two sister. I love Knitting, watching movies and Water sports.
Also visit my blog post - http://Hostgator1Centcoupon.info/ (http://dawonls.dothome.co.kr/db/?document_srl=373691)
- ↑ Snowdon, B., Vane, H., & Wynarczyk, P. (1994). A modern guide to macroeconomics. (pp. 236–79). Cambridge: Edward Elgar Publishing Limited.
- ↑ One of the biggest reasons investing in a Singapore new launch is an effective things is as a result of it is doable to be lent massive quantities of money at very low interest rates that you should utilize to purchase it. Then, if property values continue to go up, then you'll get a really high return on funding (ROI). Simply make sure you purchase one of the higher properties, reminiscent of the ones at Fernvale the Riverbank or any Singapore landed property Get Earnings by means of Renting
In its statement, the singapore property listing - website link, government claimed that the majority citizens buying their first residence won't be hurt by the new measures. Some concessions can even be prolonged to chose teams of consumers, similar to married couples with a minimum of one Singaporean partner who are purchasing their second property so long as they intend to promote their first residential property. Lower the LTV limit on housing loans granted by monetary establishments regulated by MAS from 70% to 60% for property purchasers who are individuals with a number of outstanding housing loans on the time of the brand new housing purchase. Singapore Property Measures - 30 August 2010 The most popular seek for the number of bedrooms in Singapore is 4, followed by 2 and three. Lush Acres EC @ Sengkang
Discover out more about real estate funding in the area, together with info on international funding incentives and property possession. Many Singaporeans have been investing in property across the causeway in recent years, attracted by comparatively low prices. However, those who need to exit their investments quickly are likely to face significant challenges when trying to sell their property – and could finally be stuck with a property they can't sell. Career improvement programmes, in-house valuation, auctions and administrative help, venture advertising and marketing, skilled talks and traisning are continuously planned for the sales associates to help them obtain better outcomes for his or her shoppers while at Knight Frank Singapore. No change Present Rules
Extending the tax exemption would help. The exemption, which may be as a lot as $2 million per family, covers individuals who negotiate a principal reduction on their existing mortgage, sell their house short (i.e., for lower than the excellent loans), or take part in a foreclosure course of. An extension of theexemption would seem like a common-sense means to assist stabilize the housing market, but the political turmoil around the fiscal-cliff negotiations means widespread sense could not win out. Home Minority Chief Nancy Pelosi (D-Calif.) believes that the mortgage relief provision will be on the table during the grand-cut price talks, in response to communications director Nadeam Elshami. Buying or promoting of blue mild bulbs is unlawful.
A vendor's stamp duty has been launched on industrial property for the primary time, at rates ranging from 5 per cent to 15 per cent. The Authorities might be trying to reassure the market that they aren't in opposition to foreigners and PRs investing in Singapore's property market. They imposed these measures because of extenuating components available in the market." The sale of new dual-key EC models will even be restricted to multi-generational households only. The models have two separate entrances, permitting grandparents, for example, to dwell separately. The vendor's stamp obligation takes effect right this moment and applies to industrial property and plots which might be offered inside three years of the date of buy. JLL named Best Performing Property Brand for second year running
The data offered is for normal info purposes only and isn't supposed to be personalised investment or monetary advice. Motley Fool Singapore contributor Stanley Lim would not personal shares in any corporations talked about. Singapore private home costs increased by 1.eight% within the fourth quarter of 2012, up from 0.6% within the earlier quarter. Resale prices of government-built HDB residences which are usually bought by Singaporeans, elevated by 2.5%, quarter on quarter, the quickest acquire in five quarters. And industrial property, prices are actually double the levels of three years ago. No withholding tax in the event you sell your property. All your local information regarding vital HDB policies, condominium launches, land growth, commercial property and more
There are various methods to go about discovering the precise property. Some local newspapers (together with the Straits Instances ) have categorised property sections and many local property brokers have websites. Now there are some specifics to consider when buying a 'new launch' rental. Intended use of the unit Every sale begins with 10 p.c low cost for finish of season sale; changes to 20 % discount storewide; follows by additional reduction of fiftyand ends with last discount of 70 % or extra. Typically there is even a warehouse sale or transferring out sale with huge mark-down of costs for stock clearance. Deborah Regulation from Expat Realtor shares her property market update, plus prime rental residences and houses at the moment available to lease Esparina EC @ Sengkang reprinted in 20 year-old Real Estate Agent Rusty from Saint-Paul, has hobbies and interests which includes monopoly, property developers in singapore and poker. Will soon undertake a contiki trip that may include going to the Lower Valley of the Omo.
My blog: http://www.primaboinca.com/view_profile.php?userid=5889534