1. An excellent introduction to the ideas briefly summarised in this paper will be found in D.K.H. Begg, The Rational Expectations Revolution in Macroeconomic‘ (Oxford: Phillip Allan 1982). An authoritative mathematical treatment is T. Sargent, Macroeconomic Theory (London: Academic Press, 1978). For a survey of the subject since the mid-1970s see S. Fischer, ‘Recent Developments in Macroeconomics’, Economic Journal, No. 391, June 1988.
2. The background to these developments is in S.G. Hall and S.G.B Henry, Macroeconomic Modelling (Amsterdam: North Holland, 1988). The new features of the model were first described in S.G. Hall and S.G.B. Henry, ‘Rational Expectations in an econometric model: NIESR model 8’, National Institute Economic Review, No. 114, Nov 1985.
3. For an example of its use to address an important policy issue see A.J.C. Britton, ‘Can fiscal expansion cut unemployment?’, National Institute Economic Review, No.115, Feb.1986.
4. The Institute model as it then was is described in A. Britton (ed) Employment, Output and Inflation (London: William Heinemann, 1983). The chapter by S.G. Hall on the exchange rate is particularly relevant.
5. The estimation of this equation is described in S.G. Hall, ‘A forward-looking model of the exchange rate’, Journal of Applied Econometrics, vol.2, no. 1 1987. Related work is also reported in D. Currie and S.G. Hall. ‘The Exchange Rate and the Balance of Payments’, National Institute Economic Review no. 115, Feb.1986.