Summary
Traditionally, macroeconomics had been the realm of the Keynesians, whereas classical precepts had traditionally been applied to microeconomics and aggregated to have a shot at macro. NCM takes and applies this basis to develop a clear and coherent set of principles that aim to explain the major players, unemployment and inflation, from a fully neoclassical perspective.Main definitions and economists:
- New Classical Macroeconomics
- Robert Lucas
- Thomas Sargent
- Rational expectations
Unemployment and inflation:
Thomas John Sargent, born in 1943, is an American economist who has been deeply involved in the new classical macroeconomics, researching the fields of macroeconomics, monetary economics and time series economics. It was in 2011 when he and Christopher A. Sims were awarded the Nobel Prize in Economic Sciences for the use of empirical research when explaining cause and effect in macroeconomics.
Sargent is considered to be one of the leaders in the rational expectations revolution that states that people respond strategically to changes in fiscal and monetary policy, and not passively, as previous models such as the adaptive expectations assumed. In this field, his works with Neil Wallace are of paramount importance, specially their paper “Rational Expectations and the Theory of Economic Policy”, 1976, which focuses on the application of rational expectations to analyze the outcome of monetary policies; and their paper “Some Unpleasant Monetarist Arithmetic”, 1981, which deals with the problem of monetarist arithmetic, and whose main conclusion is that issuing government debt to fund economic policies can cause as high an inflation as monetizing debt.
Sargent has also developed studies on the evolution of unemployment, comparing the United States with Europe, which conclusions are reflected in the work “Two Questions about European Unemployment”, 2007.
