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Recent Perspectives in and on Macroeconomics

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  • Benjamin M. Friedman
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    Abstract

    The experience of costly disinflation in the early 1980s has contradicted the central policy promise of the new classical macroeconomics just as sharply as the experience of accelerating inflation in the l970s contradicted the chief promise of earlier thinking. Much of the attractive appeal of each approach rested on its holding out the prospect of successfully dealing with the foremost macroeconomic policy issue of its time -unemployment in the earlier case, and inflation more recently -without incurring the costs that previous thinking associated with effective solutions. Inflation did accelerate in the 1970s, however, and now the real economic costs of disinflation have proved remarkably in line with conventional estimates antedating the new classical macroeconomics. The implication of this unfortunate outcome is not, of course, simply to return to earlier approaches,but to retain what is theoretically appealing about the methodology of the new classical macroeconomics i a form that does not lead to falsified policy conclusions.

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    File URL: http://www.nber.org/papers/w1208.pdf
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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1208.

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    Date of creation: Sep 1983
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    Publication status: published as Friedman, Benjamin M. "Recent Perspectives in and on Macroeconomics." Issues in Contemporary Macroeconomics and Distribution, edited by George R. Feiwel, pp. 270-286. London: Macmillan Publishing,1985.
    Handle: RePEc:nbr:nberwo:1208

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    1. Thomas J. Sargent, 1982. "Beyond demand and supply curves in macroeconomics," Staff Report 77, Federal Reserve Bank of Minneapolis.
    2. Robert J. Shiller, 1975. "Rational Expectations and the Dynamic Structure of Macroeconomic Models:A Critical Review," NBER Working Papers 0093, National Bureau of Economic Research, Inc.
    3. Simon, Herbert A, 1979. "Rational Decision Making in Business Organizations," American Economic Review, American Economic Association, vol. 69(4), pages 493-513, September.
    4. Friedman, Benjamin M., 1979. "Optimal expectations and the extreme information assumptions of `rational expectations' macromodels," Journal of Monetary Economics, Elsevier, vol. 5(1), pages 23-41, January.
    5. Weiss, Laurence M, 1980. "The Role for Active Monetary Policy in a Rational Expectations Model," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 221-33, April.
    6. Robert J. Gordon, 1975. "Recent Developments in the Theory of Inflation and Unemployment," Discussion Papers 199, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    7. Lucas, Robert E, Jr, 1980. "Methods and Problems in Business Cycle Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 12(4), pages 696-715, November.
    8. Grossman, Sanford & Weiss, Laurence, 1983. "A Transactions-Based Model of the Monetary Transmission Mechanism," American Economic Review, American Economic Association, vol. 73(5), pages 871-80, December.
    9. Fischer, Stanley, 1977. "Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 191-205, February.
    10. Okun, Arthur M, 1978. "Efficient Disinflationary Policies," American Economic Review, American Economic Association, vol. 68(2), pages 348-52, May.
    11. Phelps, Edmund S & Taylor, John B, 1977. "Stabilizing Powers of Monetary Policy under Rational Expectations," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 163-90, February.
    12. repec:nbr:nberre:0126 is not listed on IDEAS
    13. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
    14. Robert J. Gordon, 1975. "The Impact of Aggregate Demand on Prices," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 6(3), pages 613-670.
    15. Siegel, Jeremy J, 1982. "Monetary Stabilization and the Informational Value of Monetary Aggregates," Journal of Political Economy, University of Chicago Press, vol. 90(1), pages 176-80, February.
    16. Lucas, Robert E, Jr, 1981. "Tobin and Monetarism: A Review Article," Journal of Economic Literature, American Economic Association, vol. 19(2), pages 558-67, June.
    17. Sidrauski, Miguel, 1969. "Rational Choice and Patterns of Growth," Journal of Political Economy, University of Chicago Press, vol. 77(4), pages 575-85, Part II, .
    18. Taylor, John B, 1975. "Monetary Policy during a Transition to Rational Expectations," Journal of Political Economy, University of Chicago Press, vol. 83(5), pages 1009-21, October.
    19. Robert E. Lucas, Jr. & Thomas J. Sargent, 1979. "After Keynesian macroeconomics," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr.
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    Cited by:
    1. Bennett T. McCallum, 1984. "Credibility and Monetary Policy," NBER Working Papers 1490, National Bureau of Economic Research, Inc.
    2. Aizenman, Joshua & Marion, Nancy, 2009. "Using Inflation to Erode the U.S. Public Debt," Santa Cruz Department of Economics, Working Paper Series qt6xf174rs, Department of Economics, UC Santa Cruz.
    3. William R. Kerr & William F. Lincoln, 2010. "The Supply Side of Innovation: H-1B Visa Reforms and U.S. Ethnic Invention," Journal of Labor Economics, University of Chicago Press, vol. 28(3), pages 473-508, 07.

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