“One troublesome aspect is the place of rational expectations macroeconomics in the often political debate over Keynesian economics. At least implicitly, many people feel that what's bad for the rational expectations viewpoint is good for the Keynesian one, and vice versa. But it is hard to see how the problems in using the rational expectations approach to explain monetary nonneutrality can alleviate the theoretical and empirical shortcomings of the Keynesian model.”

Robert J. Barro, "Rational Expectations and Macroeconomics in 1984" (1984).

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American classical macroeconomist 1944

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“Lucas and Sargent’s main argument was that Keynesian economics had ignored the full implications of the effect of expectations on behavior. The way to proceed, they argued, was to assume that people formed expectations as rationally as they could, based on the information they had. Thinking of people as having rational expectations had three major implications, all highly damaging to Keynesian macroeconomics. …
The first implication was that existing macroeconomic models could not be used to help design policy. … The second implication was that when rational expectations were introduced in Keynesian models, these models actually delivered very un-Keynesian conclusions. … The third implication was that if people and firms had rational expectations, it was wrong to think of policy as the control of a complicated but passive system. Rather, the right way was to think of policy as a game between policy makers and the economy. …
To summarize: When rational expectations were introduced, Keynesian models could not be used to determine policy; Keynesian models could not explain long-lasting deviations of output from the natural level of output; the theory of policy had to be redesigned, using the tools of game theory.”

Olivier Blanchard (1948) French economist

Source: Macroeconomics (7th Edition, 2017), Ch. 24 : Epilogue: The Story of Macroeconomics

“If we look beyond the issue of monetary nonneutrality, then we do find areas of macroeconomics that use rational expectations and in which important recent progress has been made.”

Robert Barro (1944) American classical macroeconomist

Robert J. Barro, "Rational Expectations and Macroeconomics in 1984" (1984).

“Monetarism—both of the older Friedman version stressing adherence to money stock targets and of the newer rational expectations variety—has been badly discredited. The stage has been set for recovery in the popularity of Keynesian diagnoses and remedies. I do not mean to imply, of course, that there is some Keynesian truth, vintage 1936 or 1961, to which economists and policymakers will or should now return, ignoring the lessons of economic events and of developments in economics itself over these last turbulent fifteen years. I do mean that in the new intellectual synthesis which I hope and expect will emerge to replace the divisive controversies and chaotic debates on macroeconomic policies, Keynesian ideas will have a prominent place.”

James Tobin (1918–2002) American economist

James Tobin, "Keynes' Policies in Theory and Practice", Challenge (1983).
1970s and later

“Not only is it possible to devise complete models of the economy on hypotheses other than rationality, but in fact virtually every practical theory of macroeconomics is partly so based. The price- and wage- rigidity elements of Keynesian theory are hard to fit into a rational framework, though some valiant efforts have been made. … But if the Keynesian model is a natural target of criticism by the upholders of universal rationality, it must be added that monetarism is no better. I know of no serious derivation of the demand for money from a rational optimization. … The use of rationality in these arguments is ritualistic, not essential.”

Kenneth Arrow (1921–2017) American economist

1970s-1980s, "Rationality of Self and Others in an Economic System", 1986

“New-classical economics has been undeniably influential, but not in the way that its three prominent creators originally imagined. Its most important contribution to macroeconomics, the assumption of rational expectations, was stolen almost immediately, and applied more fruitfully, by the new Keynesians.”

Robert J. Gordon (1940) American economist

"Fresh Water, Salt Water, and other Macroeconomic Elixirs", 1989

“My recollection is that Bob Lucas and Ed Prescott were initially very enthusiastic about rational expectations econometrics. After all, it simply involved imposing on ourselves the same high standards we had criticized the Keynesians for failing to live up to. But after about five years of doing likelihood ratio tests on rational expectations models, I recall Bob Lucas and Ed Prescott both telling me that those tests were rejecting too many good models.”

Thomas J. Sargent (1943) American economist

Thomas J. Sargent interviewed by George W. Evans & Seppo Honkapohja, Macroeconomic Dynamics, 9, 2005, 561–583.

“Much time was wasted and ink spilled in the late 1960s and early 1970s trying to interpret the lagged effect of prices on wages as reflecting adaptive lags in the formation of expectations. But if we have learned anything from the new Keynesian economics of Fischer, Taylor, Blanchard, and their younger followers, it is that price and wage inertia is compatible with rational expectations.”

Robert J. Gordon (1940) American economist

Robert J. Gordon, The Phillips Curve Now and Then. (1990).

“These ideas have implications not only for theoretical and econometric practices but also for the ways in which policymakers and their advisers think about the choices confronting them. In particular, the rational expectations approach directs attention away from particular isolated actions and toward choices among feasible rules of the game, or repeated strategies for choosing policy variables. While Keynesian and monetarists macroeconomic models have been used to try to analyze what the effects of isolated actions would be, it is now clear that the answers they have given have necessarily been bad, if only because such questions are ill-posed.”

Thomas J. Sargent (1943) American economist

"Rational expectations and the dynamics of hyperinflation." 1973

“Ball, Mankiw, Romer and others style themselves as New Keynesians. Their program is to develop improved microeconomic foundations for imperfectly flexible prices. In the process, they hope to illuminate the paradox that individually rational or near-rational behavior can result in significant collective market failures. These are certainly laudable objectives. In the end, I suspect, the program will not change the essential substance of Keynesian macroeconomics. But it will make Keynes more palatable to theorists.”

James Tobin (1918–2002) American economist

"Price Flexibility and Output Stability: An Old Keynesian View" (1993)

“Part of the downfall came early and on theoretical grounds, with the realization that real-world information lags for aggregate variables like the price level and money supply were much too short to rationalize the persistent multiyear deviations from equilibrium that seemed to characterize business cycles in most industrialized countries. The second dubious assumption, continuous market clearing, was viewed more critically once it was recognized that it was not an inextricable concomitant of rational expectations, especially when Stanley Fischer (1977) and Edmund Phelps and John Taylor (1977) showed that rational expectations could be embedded in a model containing real-world institutional features like multiperiod wage and price contracts to generate nonmarket-clearing behavior. Once Fischer and Phelps-Taylor had shown that rational expectations by itself was a necessary but not a sufficient condition to validate new-classical policy conclusions, the race was on to develop the new-Keynesian theory based on rational expectations and one or another institutional impediment to continuous market clearing.”

Robert J. Gordon (1940) American economist

"Fresh Water, Salt Water, and other Macroeconomic Elixirs", 1989

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