Expectations play an important role in the recent literature on the theory of macroeconomic policy. Rather than approaching the problem of macroeconomic policy formulation from the point of view of a policymaker mechanically controlling an economy, the recent literature has focussed on the strategic interaction of policymaking and private sector behaviour. It has also focussed on the role and interaction of political and economic institutions in understanding the theory of macroeconomic policy. A useful device for examining the many issues has been the application of game theory. The purpose of this paper is to present the insights from this rapidly developing literature in a unified framework and in a less technical way than the original contributions.
