The essential ingredients of new classical macroeconomics are (1) adoptions of the equilibrium approach to model construction, (2) acceptance of the natural rate hypothesis, (3) a belief in the superiority of policy based on rules, and (4) a strong skepticism regarding the empirical relevance for macroeconomic issues of rational bubbles phenomena. Recent "Keynesian" analyses stressing the interaction of monopolistic competition with price-change menu costs are not incompatible with the new classical approach, but have not been highly successful. A new classical policy strategy that recognizes current weaknesses in macroeconomic understanding is described and rationalized, and an analytical basis for new classical skepticism regarding bubbles, sunspots, etc. is outlined. Copyright 1989 by The editors of the Scandinavian Journal of Economics.
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