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Qualitatively Rational Expectations and Adjustment in the Specific‐Factors Model
Author(s) -
Albert Max,
Meckl Jürgen
Publication year - 1998
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/1467-9396.00135
Subject(s) - economics , rational expectations , scope (computer science) , capital (architecture) , investment (military) , microeconomics , econometrics , computer science , politics , political science , law , history , programming language , archaeology
This paper considers adjustment in a dynamic specific‐factors model with endogenous capital stocks. Investment is analyzed under the assumption that expectations are rational with respect to qualitative aspects of the adjustment process (qualitatively rational expectations, QRE). QRE leave considerable scope for systematic errors in expectations formation. Adjustment under rational expectations is similar to QRE adjustment; however, only in the former case is the speed of adjustment optimal. Overshooting of capital stocks is possible and may be optimal. Comparative‐static analysis shows an asymmetry between inflows of labor and capital: only capital inflows may cause a Rybczynski effect.