“Cagan’s adaptive mechanism for explaining expectations of inflation has sometimes been criticized as an ad hoc formulation that is inconsistent with the hypothesis that expectations are rational. In this paper, we have showed that conditions exist under which adaptive expectations are fully rational.”

"Rational expectations and the dynamics of hyperinflation." 1973

Adopted from Wikiquote. Last update Oct. 3, 2023. History

Help us to complete the source, original and additional information

Do you have more details about the quote "Cagan’s adaptive mechanism for explaining expectations of inflation has sometimes been criticized as an ad hoc formulat…" by Thomas J. Sargent?

Thomas J. Sargent10

American economist 1943

Related quotes

“An alternative “rational expectations” view denies that there is any inherent momentum in the present process of inflation. This view maintains that firms and workers have now come to expect high rates of inflation in the future and that they strike inflationary bargains in light of these expectations.”

Thomas J. Sargent (1943) American economist

Thomas J. Sargent, "The Ends of Four Big Inflations" (1981).

“Although size and book to market equity seem like ad hoc variables for explaining average stock returns, we have reason to expect that they proxy for common risk factors in returns.”

Eugene Fama (1939) American economist and Nobel laureate in Economics

Source: Common risk factors in the returns on stocks and bonds, 1993, p. 7

“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).

“In complex environments, individuals are not fully able to analyze the situation and calculate their optimal strategy. Instead they can be expected to adapt their strategy over time based upon what has been effective and what has not.”

Robert Axelrod book The Complexity of Cooperation

Chap. 1 : Evolving New Strategies

Adapted from Robert Axelrod, “The Evolution of Strategies in the Iterated Prisoner’s Dilemma,” in Genetic Algorithms and Simulated Annealing, ed. Lawrence Davis (London: Pitman; Los Altos, Calif.: Morgan Kaufman, 1987)
The Complexity of Cooperation (1997)

“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).

“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 Barro (1944) American classical macroeconomist

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

“Under norms of rationality, organizations seek to anticipate and adapt to environmental changes which cannot be buffered or leveled.”

James D. Thompson (1920–1973) American sociologist

Proposition 2.4
Organizations in Action, 1967

“In the early 1970s,… economists began to embrace the Rational Expectations Hypothesis (REH), according to which market participants’ expectations are “essentially the same as the predictions of the relevant economic theory” (Muth 1961: 316). What has been largely overlooked is that, … REH theorists presume that the role of market participants’ expectations in driving outcomes is not autonomous from the other components of the model. … Because REH models, by design, rule out an autonomous role for expectations, they are best viewed as derailing, rather than developing, the microfoundations approach.”

Roman Frydman (1948) American economist

"Which Way Forward for Macroeconomics and Policy Analysis?" 2013