Rational Expectation

Inspired by my classmate’s writing in responding a question about “Rational Expectation” that appeared in lately macroeconomics’ mid test, I decide to write the same topic. Be frankly, before I took the exam, I never heard the notion of “rational expectation” (ohh… poor me! இட்'ச definitely clear that I must increase time to “hitting the books – including journal, newspapar, etc”… :-D).

After two days of doing nothing because of suffering from midterm syndrome, fortunately, today, I got permission to borrow a book from a nice friend (thank you jelek!), a book that consists of several economics articles of Nobel Price receiver. Several of them talk about Rational Expectation.

Though the articles provided in book are not clear enough in explaining about The Rational Expecation, here I try to make summary on it. Basically, this writing is simply aimed to share while testing my knowledge about the topic I just read (lieur teu jiga dibaca sanes kituh…). To be honest, since now, I committed myself to write as many as I can as the way I choose to internalize all knowledge that I get from classes, discussions, books, newspaper or journal that I read. For this reason, I open with all critiques.

Background

To begin with, expectation is very essential in economics for every decision that deals with future always related to what people “expect” to happen in the future. If people expect to be wealthy in the future, they will consume more so that aggregate output will increase. If investor expects an increasing interest rate that can affect his loses in the long run, he will decrease his demand to bond. Basically, the theory of rational expectation is intended to explain about how people whom involed in economy activities perform their expectation.

Before we go further about rational expectation, we discuss first about what is “adaptive expectation” for the notion rational expectation was came up and developed from that idea. Adaptive expectation is expactation that people made based on the past information they have. In the other words, people make their expectation simply based on their past experiences without any considering to the present information. For this reason, adaptive expectation could be mislead.

Rational Expectation

Robert Lucas was well known as a Nobel Price receiver in economics for his theory about Rational Expectation. However, this theory firstly developed by John Muth that adopted from “adaptive expectation” as explained above. Rational expectation itself defines as optimum prediction or forcasting about future by using all information available. Eventhough, rational expectation is based on all available information, it could be faulty because of two reasons:

a. First, people aware about all available information but they are too lazy to work on making good forcast;

b. Second, people may not aware about relevan information so their prediction about future was misslead.

Why Theory of Rational Expectation is Important?

Principally, the answer to the question “why people try hard to work on their expectation” is simple that is for they won’t be lose. Just try to figure it out from the facts provided below: when a manufacture company knows that the level of interest rate affects their sales, if that company make wrong prediction about the level of interest rate, the company will receive lesser profit for they will produce too much or too less. For this reason, the company will use all its sources to get as much as information that can help them to predict the level of interest rate in the future.

Robert Lucas had applied his “rational expectation” theory to check why some policies failed. He critiques policy evaluation by using econometric application that involves mathematical equations which describes causalities among variables. According to Lucas, the involving of a policy changes the behaviour of people. This shows that the expectation of people change/influence that policy itself.

Expectation is important in economics decision making for not only household, firm but also organisation. The expectation is based on the expectation of inflation rate and labor supply in the future that influenced by expected level of wages. Generally, every individual in the economy is rational which means that they try to collect data and information as much as they can and use them to make plan or prediction about the future.

Several Critics over The Rational Expectation Theory

Eventhough rational expectation approach tend to cover the economic reality, there are several critiques upon this approach. First, because of complexity and dynamism of economy, people are doubted to make rational forcasting. Second, every person has different economic model so that rational expectation is different among one and others. Third, people are not always. Fourth, it’s not easy to formulate the rational expectation to a concrate macroeconomic model that can accommodate the changes of parameters in the model.

Conclusion

To sum up, the rational expectation is a sort of macroeconomic model that analyze the data available and used it to make prediction of future. It is intended to seek opportunities in the future by using all available information.

Sources:

Esai-Esai Nobel Ekonomi, KOMPAS

Awesome Belitung Island, Indonesia!!!!

Last week, my friends and I went to Belitung Island for vacation. Actually, the vacation was arranged accidently. Here this the story. A couple weeks ago, I bought a traveling magazine and read one of its article saying about five affordable island holidays. I decided to pick one of them for I would have 2 weeks off before involving seriously in a real study for my master that will be started on August 10.

I decided to have Belitung Island for my vacation, but I was confused about whether I went with companions or went alone. After browsing from the Internet about Belitung, I decided to look for companions since Belitung is not like Bali, a place that I am quite familiar with. Though it is a small island that available to be exlored in a short time, its facilities are not quite good. Hotels, and restourants are only few and simple. Moreover, Belitung has a rare and unconvinient public transportation so I have to rent a car and a boat for exploring Belitung Island. It meant that it would be expensive for going there alone for I am a student... :-p. Therefore, I looked for companions afterwards.

I got Lia and Indah as my companions, the ones whom I never had traveling with before. Uupsssttt.... I just noticed that there always different companions for each of my travelings and I don't feel bothered with it. It may be because I am a kind of easy going person. Having fun with new person while learning about others' personalities. hehehe....

All have been prepared before we departed: flight ticket returns have been bought, hotel has been booked, a car and a boat have been rented including its quides. We're ready!!!

Belitung Island is located in South China Ocean. According to the website that I read before I went there, Belitung has beautiful beaches, even they claim that the beaches are more beautiful than Bali has. wow, sound interesting!!! I said to myself, 'Let's prove it!'. The day has come! On July 31, we went to Belitung by Batavia Airlines, departed from Soekarno-Hatta Airport, Jakarta and it on ly takes 40 menutes away, shorter than Jakarta - Bali flight that takes about one hour.

Arrived at Hananjoedin Airport, Tanjung Pandan, Belitung, a driver named Pak Itho who is also a guide, picked us up. He is a nice and funny guy, so he mingled easily with the three of us. After check-in to the hotel named Wisma Aditia, located in Jl. Diponegoro, we went directly to Tanjung Tinggi (directly meant that we didn't put our luggage-carrier to the hotel's room first since each of us only brought a bag).

Tanjung Tinggi

Tanjung Tinggi beach is also well known as Laskar Pelangi Beach since it used to shoot some scenes of the Laskar Pelangi Movie. One characteristic of Belitung beaches is there alway irrigular big-stones that beautify the beach.

A blue-green sea water color is also quite different from any other beaches. Furthermore, the type of sand is quite different from any other beaches. Definitely beautiful beach!! In Tanjung Tinggi beach, we were swimming while enjoying the sunset. Fortunately, when we were there, we got a perfect sunset because there were no clouds.

Tanjung Kelayang

After Tanjung Tinggi, we went to Tanjung Kelayang, other beautiful beach with awesome-stone-arrangement. We met Pak Rusdy there, the one who would guide us to the islands tomorrow morning. We had lunch there. Enjoying seafoods while the sea wind blows over our faces is astoning. The food cooked by Pak Rusdy's wife was testy and yummy. Hemmm.... Tanjung Kelayang scenery is awesome!

At the night, we hunted for durian. Since I am a durian maniac, I was so excited. We got some but not the best ones for the durian season in Belitung is almost over. It all was in the first day.

In the second day, we went to islands guided by Pak Rusdy and accompanied by Pak Itho. O ya... Belitung is surrounded by about 189 small islands. Some of them are inhibited islands such as Mendanau Island, Seliu Island, Nadu Island and Batu Dinding Island. We departed from Tanjung Kelayang. The first island we visited was Gusong Island. It is an island that only appears in the morning because in the afternoon the water sea level increases and covers the island. Though the island consists of white sand only, it is very beautiful for it surrounded by a blue-green ocean. I was speechless. Awesome Gusong Island!

The next visit was to Batu Belayar. It is a kind of island that consist of many big stones. I wonder how God creates those amazing place. O ya... since I was accompanied by two photographic-maniac and two awesome guides, we took many pictures everywhere with any kind styles-even the odd ones. Hehehe...

Next visit was Burung Island. Different from the former islands, Burung island is an island with many threes and longer cost-line. There is a group of big stones named Batu Menceko stand firmly in the beach. Awesome stones! The white-sand beach is also beautiful.

After visiting Burung Island, we went to Lengkuas Island, an island which is well known with its lightouse. The lightouse was built in 1880, colonialism era, and have been operating for 127 years. There were two man take care of this tower. Arrived at this island, Pak Rusdy cooked lunch for us. The menu were shrimp and poulp. After lunch, we took a rest for awhile and then went up to the lightouse. It has 18 floors and every windows in every floor has different awesome view of the sea. W-O-Wwww.... awesome...views.... In the top of lightouse, I almost cried for I saw beautiful scenery. I was amaze for God created Indonesia uniquely and beautifully. I said to is myself, wow and wow, repeteadly... God is great! God is great!!

After went down from the top of lightouse, we changed our dress-code and went for snorkling. Lengkuas Island has various diversities of corals. About 45 menutes we were snorkling, we went to Babi island afterwards to see sunset, another beautiful sunset. After sunset, we went back to Tanjung Kelayang, had dinner at Mie Belitung, Tanjung Pandan and went back to the hotel for taking a rest. Though tiring, it was awesome day.

In the third day, Pak Itho picked us up on 6 am because we asked him to deliver us to East Belitung, a quite away from Tanjung Pandan, while there was limited time. We checked out from the hotel and went directly to East Belitung. We went to Vihara Kwan Im, Toko Abadi, SD Muhammadiyah Ex-Shooting Laskar Pelangi and Pece Dam. On 10.30 am we have reaced Airport and ready to went back to Jakarta.

Mfyuuughhh.... what can I say about this vacation. Three words: AWESOME, EXOTIC, and SATISFIED !!! Belitung is very very beautiful. One thing for sure, the more I know Indonesia, the more I love it. I think that I have to visit it again one day. I'll schedule it!

So... guys, if you haven't visit Belitung, I suggest you to visit it or you will regret. Sure!

To which I belong?

I am Javanese. Both my father and mother are Javanese. In addition, as long as I can remember there’re no mixed bloods from any great grandparents. I was born in a small town named Boyolali, Central Java. Until Senior High School, I used to speak Javanese Language on my daily life. What a weird! When I was studying in Bandung, many friends and seniors asked me about what’s my bataknese family name. That kind of question had been asked so many times since I enrolled the collage. I didn’t know why. Was that due to my face? Emm… I didn’t know, but I didn’t think so. If you know my mother, who is a purely Javanese, you’ll see how I resemble her face. The question was not bothering much actually, but it sounded odd. Hehehe… Yeeaahhh… forget it! Hehehe… Since I married to a handsome bataknese man 2 years ago, I can handle that kind of question for I already have a bataknese family name. So, to which I belong now? I belong to both of them… :-).

A Lovely Vacation

About 2 months ago, I planned to have a vacation. The plan was about visiting Boyolali, a place where I was born and spent my childhood and teeneger. My parents are living there. Actually, I planned to visit my parents’ home in Boyolali on the first week of March, but it canceled for there was a wedding invitation from my friend in Bandung. Since then, I tried to find out other days that proper to have “a little break” from routineness. There were some days in the last of March that seem appropriate to have vacation. Gotchaaa… 26 – 30 March, I got it. Fortunately, I got cheap price for flight Jakarta-Jogja by Garuda Airways. It’s always fun to visit Boyolali for there are not only my parents and family but also some old friends.

My parents are getting older. My father is 73 years old while my mother is 65 years old. Because I live far away from them, I only can communicate with them by phone. Visiting and seeing them keep healthy and happy are relieving me much. On the other hand, having vacation in Boyolali is always fun. It is because of the food that I can’t find in other place except Central Java region, such as Sego Jagung, Sambel Tumpang, etc. In Boyolali, I also can eat irregular food that restricted to eat doe to a personal reason (I mean the smell) such as Pete and Jengkol. Hihihi….!!! Lovely, here did I get my freedom in consuming that such “inappropriate food” ..:-p.

Moreover, some old friends are living in Boyolali or cities around it, Jogja, Solo and Semarang. When I visit Boyolali, I never forget to hang-out with them. Sharing, having chit-chat about anything particularly about school memories and laughing aloud to the past behavior that mostly embarassing are very amusing. Delightful !!. Yes, it was definitely a kind of lovey vacation.

Today, I have to go back to Jakarta. So, let’s get back to “the main responsibilities”. Study and Study.

Dearest Father

I got home, my parents home actually, 2 days ago. Here am I taking a break for holiday. I am missing some classes for this. Hehehe… Hopefully my coming will relieve my parents for they really miss me, their younger child. Huhuhu… narcissist! Yeah, my parents only have 1 son and 1 daughter. For my brother is living in Boyolali, near my parents house, he comes to my parents house for daily, while I am staying away and used to going to Boyolali about 3 times in a year. No doubt if they miss me much… (keep narcissist!). Emm… I have been at home for 2 days. I notice that my father whose age is 73 years old keeps energetic in enjoying his life. There are two things that make me amaze.

Firstly, my father looks so healthy. When others old men are just staying at home, my fathers are having exercises. Hehehe… lovely! He rides bicycle every morning (and even in afternoon). Yesterday, I accompanied him to ride bicycle while sightseeing rice fields. You know what? Anytime we through up street, my father kept riding his bicycle, while I got down from my bicycle. Hahaha… poor me!! My father also plays fulsal with his friends 2 times a week. He even has a uniform that he always wears to play footsal. Hehehe… Seems like a professional football player.

Secondly, my father looks so happy. My father is a kind of person who is easy going. Moreover, now he has no burden for his children have been working (minimum standard for successful parents… :-p). Beside that, I think that doing exercises ragularly also makes my father refresher.

It’s lovely to see it. It has even touched my heart. Sure. I always love being home, Seeing my parents are healthy and happy. Home always gives comfortness. Staying with people who we love and to be loved us is lovely.