So Did Lucas Create HyperRational Expectations?


Lots of people appear to be forgetting this one or getting it wrong…the central model of The General Theory of Employment, Interest and Money is a rational expectations model.

The difference with the soi-disant “rational expectations” school is over the expectations-forming process with respect to the effect on price and output of monetary policy, not anything else. Hope that’s cleared up now. [emphasis, style change mine]

I think I see the problem now. Everyone obsesses over every aspect of fiscal and monetary policy. When do they work—and, more importantly, how do they develop skill sets and core competencies (“competitive advantages”)—in the Lucas model?