In the previous chapter the concept of rational expectations was briefly introduced. The purpose of this chapter is to consider in detail some of the issues raised by this modelling technique. There has been an immense amount of research over the past decade investigating the implications of the rational expectations hypothesis for economic behaviour, and so our choice of topics for discussion will be somewhat less than comprehensive and will be introductory in nature. The reader requiring a more detailed consideration of these issues is strongly recommended to consult the specialist books by Begg (1982), Lucas and Sargent (1981), or Minford and Peel (1983).
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