Woodford shows finite horizons matter when modelling


Removing the “plainly heroic” assumption that all actors have perfect foresight can change the results of key economic models, according to Columbia University professor Michael Woodford.

In a recent NBER working paper, Woodford argues that while rational expectations are often assumed to be a “useful idealisation”, their inclusion in dynamic stochastic general equilibrium models can lead to counterintuitive results.

One such result is the “Neo-Fisherian” idea that higher interest rates can

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