Modern macroeconomics in practice: how theory is shaping policy

Varadarajan Chari and Patrick Kehoe

No 376, Staff Report from Federal Reserve Bank of Minneapolis

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 discretionary 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: Taxation; Monetary policy; Inflation targeting (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-cba, nep-dge and nep-mac
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Citations: View citations in EconPapers (69)

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Journal Article: Modern Macroeconomics in Practice: How Theory Is Shaping Policy (2006)
Working Paper: Modern Macroeconomics in Practice: How Theory is Shaping Policy (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmsr:376

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