Robert E. Lucas Lucas’ work is sometimes heralded as revolutionary, marking the beginning of the end of Keynesian economics and the birth of rational expectations economics. By the late 1960s, there was a consensus among macroeconomists that the Phillips curve was a central feature of business cycles. The demonstration that a Phillips curve could emerge in an economic model with rational agents is at one level an impressive display of technical wizardry. The process of integrating economic theory into macroeconomics has fundamentally altered the profession’s perspective on a variety of questions. The distinction between structural and reduced-form parameters and warnings about using reduced-form models for policymaking were well known in economics far before Lucas. Lucas used other examples to make the point that conflicts of this variety are pervasive. One example concerns the effect of a temporary investment tax credit to stimulate economic activity in recessions.
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