Robert J. Lucas, Robert Barro, and Thomas J. Sargent are responsible for the rise of New Classical Economics during the 1970's. The central assumption of New Classical ideology is "rational expectations", which assumes that actors in the economy are smar
t and forward looking and therefore attempt to predict the policies that government is going to implement. New Classical economists such as Sargent also assume that wages and prices adjust continuously to clear markets. Thomas J. Sargent and Neil Wallace
were the first proponents of the idea that macroeconomic policy is ineffective. According to Wallace and Sargent, if taxes and spending are fixed institutionally, as they in practice are for the United States, the apparently anti-inflationary shift to
wards deficit finance away from seignorage may turn out to be inflationary because "anticipated" inflation will cause agents to shift out of money because of rational expectations.
Works by Thomas J. Sargent:
- Rational Expectations, the Optimal monetary Instrument and the Optimal Money Supply Rule, JPE
- After Keynesian Macroeconomics
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