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Only Paul Could Go To Changchun

Thomas Sargent reviews Robert Lucas's Collected Papers on Monetary Theory

7/20/2015

 
The article in the March 2015 JEL is here.

Why does this matter?  Because monetary theory has struggled to move beyond the ideas spelled out in Lucas's papers, innovative and insightful as they are. The current dominance of DSGE (dynamic stochastic general equilibrium) models can be traced back to Lucas, who favored general equilibrium as the benchmark of any solid modelling strategy.

Lucas's 2003 assessment of the state of monetary theory:

  “Macroeconomics was born as a distinct field in the 1940s, as a part of the intellectual response to the Great Depression. The term then referred to the body of knowledge and expertise that we hoped would prevent the recurrence of that economic disaster. . . . macroeconomics in this original sense has succeeded: Its central problem of depression prevention has been solved, for all practical purposes, and has in fact been solved for many decades."



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