The Economics Book

IN CONTEXT

FOCUS

Economic policy

KEY THINKERS

Edward Prescott (1940–)

Finn Kydland (1943–)

BEFORE

1961 John Muth publishes Rational Expectations and the Theory of Price Movements.

1976 US economist Robert Lucas argues that it is naive to model government policy on solutions that have worked in the past.

AFTER

1983 US economists Robert Barro and David Gordon suggest that high inflation arises from discretionary government policy and propose central bank independence.

From 1980s Independent central banks are established in many countries worldwide and commit to simple policy rules.

Following World War II, economics was dominated by Keynesian thinking. This ...