Theoretical Developments in the Light of Macroeconomic Policy and Empirical Research

Michael Bruno

No 2757, NBER Working Papers from National Bureau of Economic Research, Inc

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.

Date: 1988-11
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Published as Michael Bruno, 1989. "Theoretical Developments in the Light of Macroeconomic Policy and Empirical Research," The Scandinavian Journal of Economics, vol 91(2).

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