Nemmers Prize Lecture
"Modeling Agents with (Limited) Foresight"
The conventional assumption of rational expectations leads to paradoxical conclusions about the effects of central-bank commitments about interest-rate policy far in the future. This talk will propose that economic dynamics under an announced policy should instead be predicted using a computational model of belief formation. Under certain conditions, the predictions will be similar to a rational expectations analysis, but under others they will be quite different, providing a resolution of the paradoxes.
About Michael Woodford
Michael Woodford received the Erwin Plein Nemmers Prize in Economics for his achievements “advancing the New Keynesian approach to understanding economic fluctuations in general equilibrium, bridging the theory and the practice of monetary policy, and incorporating bounded rationality in macroeconomics.” He is the John Bates Clark Professor of Political Economy at Columbia University.
Woodford has worked extensively on macroeconomic modeling, focusing in particular on the role of expectations and alternative models of expectation formation in the propagation of economic disturbances, and in the effects of alternative monetary policies. His most important work is the treatise Interest and Prices: Foundations of a Theory of Monetary Policy, which shows how dynamic stochastic general equilibrium models can be used for monetary policy analysis, and provides theoretical foundations for inflation targeting. He is also co-author or co-editor of several other volumes, including a three-volume Handbook of Macroeconomics (with John B. Taylor), a two-volume Handbook of Monetary Economics (with Benjamin M. Friedman), The Inflation Targeting Debate (with Ben S. Bernanke), and the textbook International Macroeconomics (with Stephanie Schmitt-Grohé and Martin Uribe). His current research focuses on implications of bounded rationality for economic analysis, drawing upon findings in cognitive psychology and neuroscience, with particular emphasis on the consequences of decisions based on imprecise mental representations.