Rational Expectations and Econometric Practice: Volume 2 was first published in 1981. Assumptions about how people form expectations for the future shape the properties of any dynamic economic model. To make economic decisions in an uncertain environment people must forecast such variables as future rates of inflation, tax rates, government subsidy schemes and regulations. The doctrine of rational expectations uses standard economic methods to explain how those expectations are formed. It assumes that people form expectations in an optimal way, given their limited information and all of the uncertainties of the environment. This work collects the papers that have made significant contributions to formulating the idea of rational expectations. Selections range from John F. Muth’s classic essays of the early sixties to unpublished research of Muth, Gregory Chow, Robert E. Lucas, and Lars P. Hansen and Thomas J. Sargent. Most of the papers deal with the connections between observed economic behavior and the evaluation of alternative economic policies. The editors have focused on work that will be valuable for applied economists who are interested in constructing and estimating econometric models. Their introductory essay unifies the collection and explains the relationship among various aspects of work in rational expectations theory. This collection thus presents a valuable record of the development of the concept as well as an overview of current work in the field. Contributors besides the editors and those mentioned above are: Edward C. Prescott, Neil Wallace, Robert J. Barro, Stanley Fischer, B.T. McCallum, Kenneth F. Wallis, C. W. J. Granger, Christopher A. Sims, Robert E. Hall, F. E. Kydland, Guillermo A. Calvo, and John B. Taylor._x000B_The paperback edition of this work is bound as two volumes. Volume I contains the editors’ introduction and covers the topics of Implications of Rational Expectations for Time Series, Macroeconomic Policy, and Econometric Methods. Volume II discusses the subjects of General Applications, Testing for Neutrality, and Macroeconomic Control Problems._x000B_
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