Much of the macroeconomic literature over the past few years has focused on how alternative assumptions about expectations may explain the patterns of correlations in aggregate data. However, the empirical weaknesses of the rational expectations assumption have limited our progress in this area.
The growing interest in research examining the evolution of expectations at the microeconomic level may provide better ways to discriminate between alternative hypotheses. In the meantime, policymakers must live with their uncertainty regarding how expectations are formed and how these expectations shape aggregate activity. Coping with uncertainty Given that uncertainty is pervasive, how should central banks deal with it?