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Rational Expectations and Crowding-Out
Credit and Capital Markets – Kredit und Kapital, Vol. 19 (1986), Iss. 2 : pp. 248–251
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Ogden O. Allsbrook, Jr., Athens, Georgia
References
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Begg, D. K. H., The Rational Expectations Revolution in Macroeconomics (Baltimore: Johns Hopkins University Press, 1982).
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Sargent, T. J., and Neil Wallace, “Rational Expectations, the Optimal Monetary Instrument, and The Optimal Money Supply Rule.” Journal of Political Economy. 1975 – 83, 241 – 254.
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Abstract
Rational Expectations and Crowding-Out
This paper reorders the IS – LM geometry to include rational expectations. When monetary policy is then applied, the effect is one of crowding-out. Hence, the assumptions of rational expectations, expansionary monetary policy, and reduced demand for real balances leads to reduced saving and investment ratios and an increased consumption ratio. It is thus the case that non-neutrality of money in a distributional or compositional sense exists.