COMMENT
173
emerged as a characteristic of the dynamic equilibria paths, though the recognition of this fact was slow to arrive. Numerous papers were published touting "new" solutions, many of them misleading at best. In view of the fact that the dynamic difference equations arising from these rational expectations models shared much of the same mathematical structure with the Solow and Jorgenson models studied some 20 years earlier, it is surprising how much effort was spent proving "new" results. The moral for Bob Flood on this occasion is that getting old has some advantages. You do not need to search the literature when you have lived through its development. What Behavior Do We Want to Model? The rational expectations models to which Ben has so elegantly applied his Minimal State Variable Criterion are well suited for addressing certain questions, certainly for the questions studied by Ben and others. However, I am more convinced than ever that eventually we will need to do more. My fear is that actual economies may spend part of their time on paths that are not stable. If this is the case, sometimes we may be providing inaccurate or even misleading policy advice. And perhaps this happens precisely when good advice is most needed. We might prefer models with heterogeneous agents having different information sets, different individual models, and different expectations. In particular, different agents have different time horizons (and probably none of them is infinity). Aggregation of each of these individual models (one for each heterogeneous economic agent) would give rise to the macro model. In particular, note that even when each heterogeneous agent exhibits maximizing behavior, the aggregate macro model probably could not be explained in terms of the maximizing behavior of a "representative agent." I conjecture that such an aggregated macro model would not resemble any of the current linear macroeconomic models, except perhaps under certain idealistic circumstances. One key to how such a model might work could involve a subset of agents with unrealistic expectations, say overly optimistic earnings forecasts for firms. Eventually earnings disappointments would reveal the false expectations, they would be revised, and the economy might then return to a stable Minimum State Variable solution. The modeling of how such heterogeneous expectations get revised as new information is processed will probably be a key ingredient for any such story. The Expectational Stability Criterion seems to me to represent one small step in this direction. Accordingly, I would view it with somewhat more promise than does Ben. I recognize, however, that the issue here really involves what economic questions we wish to address, and Ben's approach is perfectly appropriate for the specific questions he has singled out. Concluding Remark It is not by accident that you have not seen the B word in any of the above. To me, the B
word prejudges important economic phenomena as frivolous. I much prefer the bull and
