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This is a newly revised second edition of a key macroeconomic textbook. After explaining the historical development of the subject, the authors show how rational expectations are handled in macro models. The importance of structural micro-founded models is explained, with key examples of such structural models examined in detail and with extensions to the open economy; policy implications are highlighted throughout. Methods for testing these models against macro data behaviour are explained, detailing the latest evidence on these models' success.
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