The Rational Expectations Revolution

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.