One of the mysteries of the English language finally explained.
The hypothesis that an economic agent will make full use of all available information when forming expectations, especially with regard to inflation, and not just past values of a particular variable.Compare with adaptive expectations hypothesis
- ‘Rational expectations theory has emerged as an important aspect of new classical economics.’
- ‘Pity about the rational expectations hypothesis, eh.’
- ‘In the context of the bond market, empirical tests of the rational expectations hypothesis (REH) have without exception been tests of the time-series properties of interest rates.’
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