Introduction

Abstract

The unsettled state of macroeconomics is evidenced by the ongoing controversy in the literature about the determinants of short-term fluctuations in unemployment, real output, and inflation. Much of the debate has focused on the disagreement among Monetarists and Keynesians concerning, for example, the extent of fiscal policy induced “crowding out” and the role of money in the aggregate economy. The “rational expectations revolution” gave birth to a third school of macroeconomic thought — New Classical Economics — whose implications for the (in)effectiveness of systematic (anticipated) monetary and fiscal policy actions contradict both Monetarist and Keynesian views.