What is rational expectation? What is its policy implication?

Rational expectation is the expectation that economic variables are the most accurate on average in a long term and consistent with the economic theories and models used under the premise of effectively using all information.

It is named this way because it is assumed in economic analysis that the "expectation" of economic actors for future events is rational. We must also transform reasonable expectations. The idea of rational expectation was first put forward by American economist J·F· Mu Si in The Theory of Reasonable Expectation and Price Change.

Extended data

The school of rational expectation insists that the primary task of macroeconomic policy is to provide a stable and predictable environment for the private economy. Therefore, policy objectives must focus on long-term and stability.

The government should implement the monetary policy of long-term and stable annual growth rate of money supply and the fiscal policy of keeping the budget basically balanced. It can be seen that in terms of specific policy measures, the ideas of rational expectation school and monetarism school are basically the same, and there are not many original ones.

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