The authors analyze the expectational stability (E-stability) of the different solutions of a linear rational expectations model in which the endogenous variable depends on expectations of its current and future values, formed in the past, and also on its own lagged value. It is shown that...

A striking implication of the replacement of adaptive expectations by Rational Expectations was the "Lucas Critique," which showed that expectation parameters, and endogenous variable dynamics, depend on policy parameters. We reconsider this issue from the vantage point of bounded rationality....

Quarterly measures of U.K. labor market sectoral imbalance are computed using industrial and regional data. Cyclically corrected measures are used to examine the extent to which changes in sectoral imbalance affect the position of the unemployment-vacancy rule curve. The substantial increase in...

The U.S. dollar price of the U.K. pound sterling is tested for a speculative bubble, defined as a period with a nonzero median in excessreturns. A nonparametric procedure is developed, which controls for data mining over the period of flexible exchange rates, and finds a negative bubble in the...

The potential of monetary policy to affect the natural rate of unemployment is demonstrated for a disaggregated macroeconomic model in which it takes time for labor markets to eliminate excess supplies resulting from stochastic shocks. The effect of aggregate output variability on the natural...

The authors establish a framework wherein agents make expectation-revision decisions subject to a specified calculation technology and preferences over forecast errors. The technology endows agents with correctly specified economic models, but the cost of expectation calculation using these...

For U.S. data over 1950-85 the stochastic components of GNP growth and the unemployment rate appear to be stationary, and there is substantial feedback between these variables. The unconditional mean rate of unemployment in a joint model thus provides a natural benchmark in discussions of the...