Working Paper: NBER ID: w12476
Authors: Varadarajan V. Chari; Patrick J. Kehoe
Abstract: Theoretical advances in macroeconomics made in the last three decades have had a major influence on macroeconomic policy analysis. Moreover, over the last several decades, the United States and other countries have undertaken a variety of policy changes that are precisely what macroeconomic theory of the last 30 years suggests. The three key developments that have shaped macroeconomic policy analysis are the Lucas critique of policy evaluation due to Robert Lucas, the time inconsistency critique of discre-tionary policy due to Finn Kydland and Edward Prescott, and the development of quantitative dynamic stochastic general equilibrium models following Finn Kydland and Edward Prescott.
Keywords: No keywords provided
JEL Codes: E21; E4; E43; E5; E52; E58; E6; E62; E65; H2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Theoretical advances in macroeconomics (B22) | Changes in policy frameworks (F68) |
| Time inconsistency critique (D15) | Adoption of rules promoting commitment (D70) |
| Increased central bank independence (E58) | Lower inflation rates (E31) |
| Adoption of inflation targeting (E52) | Lower inflation rates (E31) |
| Adoption of inflation targeting (E52) | No negative impact on output (F69) |
| Optimal monetary policy (E63) | Maintain low nominal interest rates and inflation (E43) |