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Rethinking ExpectationsThe Way Forward for Macroeconomics$
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Roman Frydman and Edmund S. Phelps

Print publication date: 2013

Print ISBN-13: 9780691155234

Published to Princeton Scholarship Online: October 2017

DOI: 10.23943/princeton/9780691155234.001.0001

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Which Way Forward for Macroeconomics and Policy Analysis?

Which Way Forward for Macroeconomics and Policy Analysis?

(p.1) Which Way Forward for Macroeconomics and Policy Analysis?
Rethinking Expectations

Roman Frydman

Edmund S. Phelps

Princeton University Press

This introductory chapter discusses the papers presented at the Center on Capitalism and Society conference held in the fall of 2010. The conference, which commemorated the fortieth anniversary of the Phelps microfoundations volume, featured researchers engaged in developing alternatives to the Rational Expectations Hypothesis (REH). The Phelps volume provided radically new accounts of the comovements of macroeconomic aggregates, including inflation and unemployment, while casting serious doubt on the validity of policy analysis based on then-popular Keynesian macroeconometric models. This chapter considers the various efforts to reinvent macroeconomics that were discussed at the Phelps conference, with a particular focus on non-REH alternatives and their implications for economic analysis. Topics include nonroutine change and imperfect knowledge, expectational coordination and market volatility, autonomous expectations in long swings in asset prices, and the natural rate of unemployment.

Keywords:   macroeconomics, Phelps microfoundations volume, Rational Expectations Hypothesis, inflation, unemployment, macroeconometric models, nonroutine change, expectational coordination, expectations, asset prices

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