US economist. Lucas did not invent the theory of rational expectations but he has been its most vigorous advocate, insisting that, because the expectations of economic agents are ‘rational’, monetary and fiscal policy are ‘neutral’ and only affect physical output and employment in the extremely short run. For him, new classical macroeconomics based on the concept of rational expectations is irreconcilably opposed to Keynesian economics. He won the Nobel Prize for Economics in 1995 for his work as leader of this new school.
New classical macroeconomics had not lacked critics, including those who have their own quarrels with Keynesian macroeconomic policies. A standard criticism is that the policy-neutral conclusion depends not so much on the idea of rational expectations, as on the idea that all the markets are cleared instantaneously, which lies hidden beneath the arguments of the rational expectations school. Nevertheless, the new macroeconomics has attracted a considerable following among younger US economists.
Lucas was born in Yakima, Washington, and received his BA in History in 1959 and his PhD in 1964, both from the University of Chicago. He became a professor of economics at Carnegie Mellon University in 1970 (until 1974), and has held professorships at the University of Chicago since then. He has been editor of the Journal of Political Economy (1978–81, 1988).
His works include Studies in Business Cycle Theory (1981; co-edited with T J Sargent), Rational Expectations and Econometric Practice (1981), Models of the Business Cycle (1987), and Recursive Methods in Economic Dynamics (1989; with N L Stokey and E C Prescott).
Macroeconomics is the branch of economics that is concerned with economic aggregates. It is contrasted with microeconomics, which deals with individ
7.1 Overview Over the previous chapters, a number of different interpretations of Keynesian economics has been presented – IS/LM, the reappraisal