The Rational Expectations Revolution*

Abstract

In the last decade there has been a major new development in economics – the Rational Expectations Revolution. Its supporters claim that it has permanently altered our whole approach to economics, particularly in the areas of policy‐making and forecasting. Its critics argue that it is based on wholly unrealistic ideas about the possible sophistication of individuals in making economic decisions. This Briefing Paper offers a preliminary assessment of the Rational Expectations Revolution and indicates areas in which current research is active.