Rational expectations

Rational expectations is a theory in economics used to model the determination of expectations of future events by economic actors, originally proposed by John F. Muth (1961). Modeling expectations is of central importance in economic models, especially those of new classical macroeconomics, new Keynesian macroeconomics, and finance. For example, a firm's decision on the level of wages to set in the coming year 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.

Related Topics:
Economics - John F. Muth - New classical macroeconomics - New Keynesian macroeconomics - Finance - Inflation

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