The Evolving Core of Usable Macroeconomics for Policymakers

Jonas Fisher, Bart Hobijn and Alessandro T. Villa

AEA Papers and Proceedings, 2025, vol. 115, 163-67

Abstract: Macroeconomic models and policymakers' language have evolved significantly. Today's policy discussions center on New Keynesian (NK) synthesis, which builds on the neoclassical growth model and the AS-AD framework. It incorporates nominal and real rigidities, financial and labor market frictions, and the importance of expectations, and it inspired terms policymaker terms such as "inflation expectations" and "forward guidance." While essential for communication during the Great Recession and COVID-19 pandemic, these events also revealed the NK model's limitations. Newer models incorporating heterogeneous agents potentially offer richer policy insights but add complexity and the challenge of distilling their main policy implications going forward.

JEL-codes: E12 E31 E43 E52 E58 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1257/pandp.20251116

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