tailieunhanh - The Cost of Capitalism: Understanding Market Mayhem and Stabilizing our Economic Future_8

Tham khảo tài liệu 'the cost of capitalism: understanding market mayhem and stabilizing our economic future_8', tài chính - ngân hàng, tài chính doanh nghiệp phục vụ nhu cầu học tập, nghiên cứu và làm việc hiệu quả | 174 The Cost OF Capitalism remain confident in their abilities to wire your house and plumbers are cocksure that sewage flows downhill. Unfortunately policy makers were clearly influenced by the latest generation of economists of the classical school. Indeed I would submit that Fed policy makers Treasury officials and other key players over the past two dozen years made bad decisions in part because they let themselves believe that sewage really could on occasion flow uphill. New Keynesians Drink Half a Glass of Kool-Aid Keynesians of any stripe by definition accept the notion that market failures are possible. New Keynesians took the bait however when criticized by their new classical competition and set out to establish microeconomic foundations for Keynesian conclusions. And to do that the math required them to embrace the notion that people in general act rationally. Boom and bust cycles are not ideal according to New Keynesians. But they agree with their new classical colleagues that there is no long-run inflation unemployment trade-off. The key market imperfection that drives cycles is found in the labor market. Wages are sticky. An unlucky group loses their jobs because the majority keeps their wage rates intact. This leads New Keynesians halfway toward the new classical formulation in their design of monetary policy They agree that keeping inflation low is the main job for the central bank. They agree that there is no long-run inflation unemployment trade-off. Economic Orthodoxy on the Eve of the Crisis 175 They train their sights on the real economy and inflation giving Wall Street sideshow status. The Taylor rule best captures their efforts. The equation directs the monetary authorities to adjust nominal interest rates in reaction to inflation and output. If output is below potential amidst low inflation the central bank delivers low interest rates. When inflation rises above target the central bank raises rates confident that the temporary high .