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According to rational expectations, anticipated government intervention will not have any impact on the economy. Why?...

According to rational expectations, anticipated government intervention will not have any impact on the economy. Why? What does the empirical data say about this idea?

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Answer #1

Yes, anticipated government interference will not have an impact on the real economy, but will have an impact on how the stock market behaves in the short term and will not affect the long term economic growth path. This is because, the anticipated measures may never come by in reality and that would not hamper the economy. Also short term market movements may not affect long term growth prospects.

Empirical data suggests that when the anticipated measures are actually implemented by the government, then there is an impact either positive or negative on the economy. On the flip side, if the anticipated measures do not materialize, then there is no affect on the real economy.

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