Working Paper: NBER ID: w2757
Authors: Michael Bruno
Abstract: The paper surveys the macroeconomic literature of the last decade with emphasis on the implications of the New Classical and Rational Expectations critiques for the Keynesian paradigm and the role of macro policies. This is done on the background of the main macro developments of the l970'a and 1980's as well as the specific lessons of recent high (chronic) inflation processes. The paper takes an eclectic view emphasizing a synthesis that is emerging in which the basic Keynesian view of the existence of market and price co-ordination failures as well as room for Pareto improving policy intervention are maintained. At the same time the theoretical underpinnings are undergoing substantial change mainly due to a 'rational expectations' (rather than 'new classical') reformulation. The new Theory of Economic Policy is also discussed and illustrated in terms of recent stabilization experience.
Keywords: macroeconomics; Keynesian; rational expectations; inflation; policy
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| rational expectations revolution (D84) | macroeconomic theory adaptation (E19) |
| rational expectations revolution (D84) | policy formulation influence (D78) |
| policy formulation (D78) | macroeconomic stability (E60) |
| nominal wage rigidity (J31) | inflation dynamics (E31) |
| government intervention (O25) | market adjustments (M52) |
| government policy (F68) | market clearing (D41) |
| wage contracts (J41) | employment outcomes (J68) |
| macroeconomic shocks (F41) | inflation expectations (E31) |