"The original Lucas version of the new-classical macroeconomics combined the undeniable appeal of rational expectations with two more dubious assumptions inherited from Friedman (1968), that is, continuous market clearing and imperfect information, to form the foundation of the famous “Lucas supply function” (more justly, the Friedman-Lucas supply function). Soon Sargent and Wallace (1975) extracted from Lucas’s model its implication for monetary policy, the famous “policy-ineffectiveness proposition.” The demonstration by Barro (1977) that one could interpret historical U.S. data to be consistent with the proposition and the theory brought new-classical economics to its shortlived period of peak influence."
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Academics from the United StatesHarvard University alumniUniversity of Oxford alumniEconomists from the United StatesBusiness theorists from the United States
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Robert J. Gordon
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