Since the rational expectations revolution in macroeconomics, the subject has changed massively, adopting the principles behind the revolution and building on them in a spectacular way. In this accessible and informative book, the authors guide the student through what has become the conceptual and mathematical maze of modern macroeconomics. It is intended primarily for the postgraduate student but will also be useful for upper level undergraduates. It explains the basics of each topic and provides a solid grounding for the student to tackle more complex and detailed material in the area.
The topics covered include:
• an introduction to the traditional macro-classical macro/adaptive expectations
• how to understand and solve standard macro models with rational expectations
• implications of rational expectations for monetary and fiscal policy
• the open economy
• the new models of representative agents and real business cycles
• the political economy of economic policy (the ‘political business cycle’) and independent central banks
• the supply-side, unemployment and growth
• empirical testing of the rational expectations hypothesis
• the efficient markets hypothesis with empirical applications including bond and exchange markets
• learning, time series-linear and nonlinear.