"Initially we had the adaptive
expectations formulation for modelling expectations of economic
agents, the problem was that with these expectations only adjusting gradually
models assumed that individuals could be systematically fooled by greater than
expected inflation."
and yet my friend inflation acelerates towards disaster with adaptative pricing
this stone head doesn't seem to realize this so....jumping to rat ex
"if economic agents are sophisticated and are capable of making rational,
informed decisions about the objective function and hence true preferences of
central banks"
rat ex pricing
" any arbitrary promise by a CB of lower inflation will not
be believed since the policymaker will always have recourse to actually pursue a
higher level of inflation than announced"
ya and more to the moments purpose
any arbitrary promise to raise inflation will similarly not be believed
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then our boy quotes an authority :
"In order to form a rational expectation of inflation, agents will need to take
into account what they believe to be the ‘correct’ macroeconomic model of the
economy.”
problem :
what in fuck IS the correct macroeconomic model
the basic problem is of course the story itself
we are to suppose the captains of industry are setting prices
in anticipation of a certain demand response
they are demand constrained but
the bastards can be both
price and output
makers and takers
to me trying to generalize this to n agents
each with certain unmodeled neuron net algorithms
sets off vortical cerebration
no wonder the single agent assumption that falls out of rat ex
after all once you know the correct model
you all act the same way ...right ?
the rabbit holes are everywhere however there is this value to rat ex
it sets limits
unfortunately the limit it set for macro is essentially
useless since the purpose of macro is to correct and moderate flux
where possible
and with rat ex no action by a CB or sovereign budgeteer
can systematically correct or moderate anything
its all about one damn shock after another
the delightful starting point
assume equilibrium as the initial state
now
assume only random shocks
ie
no internally generated surprises
you have this question
how big might a random shock be and how probable
then endure what cometh
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