Modern Macroeconomics: Theory, Policy, and Events

Virtually all of this policy discussion by the Fed is conducted in terms of an aggregate short-run supply and demand framework that most closely resembles textbook Keynesianism of the kind that still dominates the college course. It bears little evidence of influences from the last 20 years of macro research. Moreover, if such an application were to be attempted, it is difficult to see what it would suggest, short of closing the Fed down or putting it on automatic pilot. The new theories are of such an abstract nature that it is very hard to see how to implement them in a policy situation. They seem to have no forecasting ability. Automatic "rules" are very popular among recent theorists of macro policy, but no central bank is actually bold enough to seriously adopt one. Flying completely blind, counting on the economy to right itself, neglecting any attempt at anticipation of events, is not in the repertoires of central bankers today - if it ever was.