Perfect Foresight, Expectational Consistency, and Macroeconomic Equilibrium

Abstract

This paper begins by introducing three alternative properties of expectations: weak consistency, strong consistency, perfect foresight. These concepts are then used to consider the relationship between beginnning of period equilibrium and end of period equilibrium for both discrete and continuous time. We show that in the former case the consistency between them requires not only that there be perfect foresight in predicting certain relevant variables but also that there can be no accumulation of assets. In the latter case the relationship between the two equilibria rests on much weaker conditions. They are equivalent provided expectations satisfy our assumption of weak consistency