Monday, May 27, 2013

Expectations

In class I talked about rational expectations, a theory that prices reflect all the relevant market information about say a stock or bond.  Part of the idea of rational expectations is that investor's not only look at the current and past information, but also form expectations about the future.  If they use all the relevant information, then the future forecast is optimal.

In today's Wall Street Journal, there is an article about Fed members discussing how investor's are forming expectations about the Fed's purchase of US Treasury bonds (quantitative easing), along with a nice piece from the Economist about US monetary policy.

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