Rational expectation

[maecon]

guys please tell me how to approach this model while solving question , on the face of it this model is very straight forward but i am unable to do question

[Akash]

Please share the question where you have the problem and we can discuss

[knowpraveen]

Rational expectation and derived expectations by using a stochastic error factor in the correction formula. Correction formula for price expectation is given as, P'(t+1) = Pt + (1-lambda)(Pt-P'(t)) where lamba is the correction factor and P' the expectation. Now, the interesting part is the expectations coincide with the actual prices in the long run.