“The role of expectations is not limited to monetary policy but is crucial in many areas of economics, as Bob showed in his later research on investment, unemployment, taxation, public debt management, and asset pricing. In all of these situations, the appropriate evaluation of policy takes account of the way that expectations would be rationally formed.”

—  Robert Barro

Source: Nothing Is Sacred (2002), p. 29

Adopted from Wikiquote. Last update June 3, 2021. History

Help us to complete the source, original and additional information

Do you have more details about the quote "The role of expectations is not limited to monetary policy but is crucial in many areas of economics, as Bob showed in …" by Robert Barro?
Robert Barro photo
Robert Barro18
American classical macroeconomist 1944

Related quotes

Naomi Klein photo

“The theory of economic shock therapy relies in part on the roleof expectations on feeding an inflationary process. Reining in inflation requires not only changing monetary policy but also changing the behavior of consumers, employers and workers. The role of a sudden, jarring policy shift is that it quickly alters expectations, signaling to the public that the rules of the game have changed dramatically - prices will not keep rising, nor will wages.”

Naomi Klein (1970) Canadian author and activist

The Shock Doctrine: The Rise of Disaster Capitalism (2007)

Alan Greenspan photo

“Of course, shedding the debt burden would be a happy development for our country, but it would nevertheless pose a big dilemma for the Fed. Our primary lever of monetary policy was buying and selling treasury securities-Uncle Sam's IOU's. But as the debt was paid down, those securities would grow scarce, leaving the Fed in need of a new set of assets to effect monetary policy.”

Alan Greenspan (1926) 13th Chairman of the Federal Reserve in the United States

Source: 2000s, The Age of Turbulence (2008), Chapter Ten, "Downturn", p. 214.

Olivier Blanchard photo

“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

“The current emphasis on price policy, as against price, as a proper object of study represents recent economic reflection on the significance of expectations, uncertainties, market control, and the position of price as one among many selling terms. Policy implies some degree of control over the course of events and, at the same time, the use of judgment as to the probable consequences of alternative lines of action. In perfect markets, whether monopolistic or competitive, price is hardly a matter of judgment and where there is no judgment there is no policy. The area of price policy, then, embraces the deliberative action of buyers and sellers able to influence price; that is to say, it covers practically the whole field of industrial prices.”

Edward S. Mason (1899–1992) American economist

Source: "Price and production policies of large-scale enterprise," 1939, p. 61

“Indeed, Hayek’s later monetary work constitutes some of his most creative practical policy suggestions, though his thought in the area was, by his own admission, undeveloped.”

Alan O. Ebenstein (1959) American political scientist, educator and author

Hayek's Journey: The Mind of Friedrich Hayek (2003)

Olivier Blanchard photo

“I refuse to start from the assumption that the role of monetary policy is to control and stabilize inflation. The only acceptable way to start is, I believe, to think of the goal of monetary policy, together with fiscal policy,as the maximization of welfare.”

Olivier Blanchard (1948) French economist

" Monetary Policy; Science or Art? https://economics.mit.edu/files/742" (2006)

Alan Blinder photo

“Monetary policy decisions tend to regress toward the mean and to be inertial—and hence biased in just the same way that adaptive expectations are biased relative to rational expectations. But errors like that, while systematic, will generally be small and will tend to shrink over time. And, in return, the system builds in natural safeguards against truly horrendous mistakes.”

Alan Blinder (1945) economist

Source: Central Banking in Theory and Practice. 1998, p. 31

Olivier Blanchard photo

“Using the popular macroeconomic models of the time, Lucas and Sargent showed how replacing traditional assumptions about expectations formation by the assumption of rational expectations could fundamentally alter the results…. Most macroeconomists today use rational expectations as a working assumption in their models and analyses of policy. This is not because they believe that people always have rational expectations. Surely there are times when people, firms, or financial market participants lose sight of reality and become too optimistic or too pessimistic… But these are more the exception than the rule, and it is not clear that economists can say much about those times anyway. When thinking about the likely effects of a particular economic policy, the best assumption to make seems to be that financial markets, people, and firms will do the best they can to work out the implications of that policy. Designing a policy on the assumption that people will make systematic mistakes in responding to it is unwise.”

Olivier Blanchard (1948) French economist

Source: Macroeconomics (7th Edition, 2017), Ch. 16 : Expectations, Output, and Policy

“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).

“There is much evidence that people are not rational, in the economist’s sense; nor do they take into account expectation, in the precise interpretation of that word. As a result economic theory often does not correspond with what happens in the market. Some would argue that we need descriptive economics. I would argue that all should be taught about probability, utility, and MEU (maximization of expected utility) and act accordingly.”

Dennis Lindley (1923–2013) British statistician

2. Stylistic Questions. p. 22.
Understanding Uncertainty (2006)

Related topics