The Rational Expectations Revolution: A Review Article of: Preston J. Miller, ed.:The Rational Expectations Revolution, Readings from the Front Line

This review article of Preston Miller's The Rational Expectations Revolution, Readings From the Front Line focuses on the impact of this research on macroeconomic policymaking. Although policymakers have generally not accepted the equilibrium business cycle models advocated in many of the articles in the Miller volume and even continue to use traditional Keynesian macroeconometric models for policy analysis, several of the lessons from the rational expectations revolution have become central in thinking about policymaking. Policymakers now recognize the importance of expectations and credibility to the outcomes of particular policies. This means that they are more cautious in their use of econometric models and are less likely to advocate discretionary activist stabilization policies. They are also more willing to design policymaking to avoid the time-inconsistency problem and take a long rather than a short-run view, thereby avoiding myopic policies that produce undesirable outcomes.