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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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PRINTED FROM PRINCETON SCHOLARSHIP ONLINE (www.princeton.universitypressscholarship.com). (c) Copyright Princeton University Press, 2021. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in PRSO for personal use.date: 26 September 2021

Indeterminacies in Wage and Asset Price Expectations

Indeterminacies in Wage and Asset Price Expectations

A Structuralist Model of Employment and Growth

(p.277) Chapter Eight Indeterminacies in Wage and Asset Price Expectations
Rethinking Expectations

Edmund S. Phelps

Princeton University Press

This chapter examines indeterminacies in wage and asset price expectations. It first considers what it argues are fatal flaws in Keynesian economics, comparing crude Keynesianism with a crude natural rate of unemployment. It then introduces a structuralist model of employment and economic growth that better illuminates the long slump without inflation in the United States. In a structuralist model, nonmonetary forces operate through structural channels to impact the path of employment and its medium-term level (as well as its long-term level). Asset prices, such as housing prices, are expressed in real terms. The chapter describes how structuralist models approaches issues relating to asset prices and wages and concludes by explaining how to think about expectation formation in modern economies—economies of the sort that became the lifetime subject of Frank H. Knight, John Maynard Keynes, and F. A. Hayek.

Keywords:   asset price expectations, Keynesian economics, unemployment, structuralist models, employment, economic growth, asset prices, wages, expectation formation, John Maynard Keynes

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