What Key Assumptions Underlie the Rational Expectations View of Interest

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The Answer is This view of interest rates and asset prices assumes that the money and capital markets are highly efficient in the use of information in determining the public's expectations regarding future changes in interest rates and asset prices. Equilibrium interest rates impound all relevant information very quickly and change only when relevant new information appears. Forecasting market interest rates is presumed to be virtually impossible on a consistent basis because interest-rate forecasters must know (1) what market participants expect to happen and (2) what new information will arrive in the market before that information actually arrives.

What Key Assumptions Underlie the Rational Expectations View of Interest

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What Key Assumptions Underlie the Rational Expectations View of Interest

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