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Theoretical Developments in the Light of Macroeconomic Policy and Empirical Research

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  • Michael Bruno
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    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.

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    File URL: http://www.nber.org/papers/w2757.pdf
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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2757.

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    Date of creation: Nov 1988
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    Publication status: published as Scandanavian Journal of Economics, vol. 91, no. 2, pp. 307-334, 1989.
    Handle: RePEc:nbr:nberwo:2757

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    8. 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.
    9. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
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    15. Hart, Oliver D, 1983. "Optimal Labour Contracts under Asymmetric Information: An Introduction," Review of Economic Studies, Wiley Blackwell, vol. 50(1), pages 3-35, January.
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