This document provides a comprehensive analysis of the Keynesian and rational expectations models, highlighting their key differences and implications for macroeconomic balance. From the assumptions of rational expectations to the criticisms of the neoclassical approach, this study offers a nuanced understanding of the complex relationships between economic agents, expectations, and market equilibrium.
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[...] Furthermore, information search has a cost that many agents (like households) do not want to bear. Thus, rational expectations are more based on beliefs than on reality. They are based on the representation that agents have of the market and its functioning. It is because these beliefs are shared by all agents that rational expectations can be self-fulfilling and thus have an impact on the reality of markets. Therefore, the debate still rages on, despite Keynes having allowed a true paradigm shift. [...]
[...] Response of the neoclassicals: rational expectations A forecast is generally the act of executing or imagining something in advance. In economics, when an agent anticipates, they emit subjective hypotheses that are more or less optimistic, which allow them to found their predictions in view of a decision on the market. A. Context of the birth of expectations The model of 'rational expectations' is the fruit of the history of economic science. It intervenes after several theories of the economic agents' expectations: - Myopic or extrapolative expectations (Metzler and Keynes): agents anticipate the value of a product at date t based on its value at dates t-1 and t-2. [...]
[...] Il deviates from the hypothesis of a certain universe to introduce the notion ofradical uncertainty. In this context of uncertainty, agents' expectations on economic magnitudes influence their choices, behaviors, and impact the equilibrium of the economic model. A. The Keynesian macroeconomic equilibrium The economic equilibrium in macroeconomics, corresponds to a a state of stability for which a certain value of the national income realizes equality between the global supply and the global demand (the total production of goods and services, regardless of their nature, placed on the market during a given period and at fixed prices) and the global demand (the total demand expressed by the entire set of economic agents, whether it is final consumption, intermediate consumption or investment). [...]
[...] Attempt to define the theory of rational expectations An article by Muth containing the expression 'rational expectations' for the first time and published in 1961 goes unnoticed, before being recovered by the neoclassicals at the end of the 1970s. The 'rational expectations' model is based on the following assumptions: - The agents are rational and seek to maximize their actions: they take into account the entire relevant information they have at a given time, present or past, or even future; and use it in a maximising way. [...]
[...] Thus, in total rupture with the the theory of the invisible hand from neoclassics, Keynes proposes the concept of a welfare state who should influence the macroeconomic balance by means of fiscal or monetary policies in order to return to a full employment equilibrium. The principle is to inject income (reducing taxes, increasing public spending, boosting investment through lower interest rates . ) for increase production thanks to themultiplier effect. The work of Keynes, due to its complexity and ambiguity, has generated a lot of numerous controversies among the defenders of a synthesis between neoclassical and Keynesian theories (notably Hicks and Hansen who develop the IS-LM model in 1937), and the advocates of a radical and irreconcilable break with neoclassical thought. [...]
