In contemporary economic theory, and especially in macroeconomics, expectations are being given a central place. There is virtually no economic model that does not examine how, within a dynamic perspective, the explicit account of individuals' expectations qualifies the conclusions of the static analysis. To a certain extent this prominent place is well founded, for expectations of future events do motivate present actions and thereby influence social phenomena as they occur in reality. However, contemporary macroeconomists go a step further. They also maintain that a specific model of the formation of expectations is necessary in order to assess the role played by expectations, and ultimately to build economic theory itself. 1 The goal of this paper is not to study the foundation of this point of view, or the proper way for economists to fathom the importance of expectations. Its more limited scope is to examine to what extent the two most common models of expectations formation attain their end. This end is to convey and exemplify the role expectations play in the manifestation of even the most basic economic phenomena, such as the determination of quantities produced and the formation of prices.Expectations are the unobservable opinions about the future that individuals form in their minds. In the absence of a clear-cut conclusion from cognitive sciences as to the objective, observable, determinants of human thoughts, economic models of expectations formation can be but arbitrary assumptions. From this standpoint, these
This article reviews the analytical justification, the theoretical content, and the practical experience of inflation targeting, which has become the standard framework for monetary policy. It shows that due to the inflation-targeting literature’s neglect for the money demand as part of the monetary relation that drives price determination, it provides a distorted theoretical account of the most basic relations in a monetary economy and an illusionary vision of what a modern central bank could achieve. The last section of the article uses the recent monetary history of Ukraine to illustrate the pitfalls and illusions of inflation targeting.
Well-intended and richly argued as Salin’s proposal for reconciliation between the Austrian School and Chicago School is, it eschews a discussion of one aspect of the two schools that is also relevant to their respective monetary views; namely, their analytical method. This short comment aims to clarify why the specific praxeological approach of the Austrian school makes its monetary theory unique. By implication, as long as methodological differences between the Austrian and the Chicago traditions persist, no reconciliation will be within reach. This comment concludes that this is the decisive, though unintended, contribution of Salin’s article.
embarks on an ambitious task: to investigate the failure of expansionary monetary policy to address the challenges of the 2008-09 Great Recession. An introduction, seven chapters and a final synopsis make up the main body of a text that spreads over 168 pages. Two short six-page appendices comment upon the likely future course of monetary policy and on the fitness of interest-rate cuts to respond to the COVID-19 crisis. An impressive forty-page bibliography, or about six hundred references, and a ten-page index close the book.The first chapter examines the conventional "interest rate" channel of monetary policy. Sieron shows that it was ineffective to spur economic growth after the Great Recession and attributes its
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