Lucas (1972), A Personal View from the Wrong Side of the Subsequent Fifty Years

David Laidler

No 20215, University of Western Ontario, Departmental Research Report Series from University of Western Ontario, Department of Economics

Abstract: Lucas (1972) was a paper that permanently changed the course of macroeconomics, even though its “money supply surprise†model lost its central place in the area within a decade because of empirical difficulties. However, Lucas’s novel methodology, based on clearing markets and rational expectations, still dominates orthodox macroeconomic theorising. An unfortunate side effect of this has been that, because mainstream models have no analytic room for money to play a key role in economic activity, the theoretical case for taking that role seriously was undermined just at the time when traditional monetarist macro-models were facing empirical problems. The consequences of all this for today’s monetary policy environment are briefly discussed.

Keywords: Lucas; neutral money, monetarism, Keynesianism; micro-foundations; clearing-markets; inflation; recession (search for similar items in EconPapers)
JEL-codes: E13 E31 E40 E52 N01 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-his, nep-hpe, nep-mac, nep-mon, nep-pay and nep-pke
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Journal Article: Lucas (1972) a personal view from the wrong side of the subsequent fifty years (2024)
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