Old- style Keynesian models relied on sticky prices or wages to explain unemployment and to argue for demand-side macroeconomic policies. This approach relied increasingly on a Phillips-curve view of the world, and therefore lost considerable prestige with the events of the 1970s. The new...

This paper examines, in light of the Lucas Critique, the behavior of the Phillips curve and of the term structure of interest rates after October 1979. It starts with an informal account of the policy change and then discusses how we might expect these two relations to shift after such a change....

The model developed in Robert Lucas's influential "Expectations and the Neutrality of Money" has not been widely used for extensions or modifications of the original analysis, in part because of its difficulty of manipulation.The present paper describes a linearized version that--unlike other...

The paper considers the implications of the rational expectations New Classical Macroeconomics revolution for the 'rules versus discretion' debate. The following issues are covered: 1) The ineffectiveness of anticipated stabilization policy, 2) Non-clausal models and rational expectations, 3)...

The paper considers the implications of the rational expectations - New Classical Macroeconomics revolution for the "rules versus discretion" debate. The following issues are covered 1) The ineffectiveness of anticipated stabilization policy, 2) Non-causal models and rational expectations, 3)...

This paper assesses biases in policy predictions due to the lack of invariance of "structural'' parameters in representative-agent models. We simulate data under various fiscal policy regimes from a heterogeneous-agents economy with incomplete asset markets and indivisible labor supply....

International capital flows from rich to poor countries can be regarded as either too small (the Lucas paradox in a one-sector model) or too large (when compared with the logic of factor price equalization in a two-sector model). To resolve the paradoxes, we introduce a non-neo-classical model...

Sticky-price models with rational expectations fail to capture the inertia in U.S. inflation. Models with backward-looking expectations capture current inflation behavior, but are unlikely to fit other monetary regimes. This paper seeks to overcome these problems with a near-rational model of...

Changes in both the macroeconomy and in macroeconomics suggest that the IS-LM-AS model is no longer the best baseline model of short-run fluctuations for teaching and policy analysis. This paper presents an alternative model that replaces the assumption that the central bank targets the money...