Which means that the real aftereffects of, say, a boost in currency development you certainly will, theoretically, end up being expansionary or contractionary, depending on the public’s standards
Within his Nobel lecture, Lucas cards one to whenever you are clear evidence is present you to definitely mediocre rising prices prices and mediocre currency development pricing try securely connected: “Brand new observation that cash transform lead to output alterations in an identical guidance gets confirmation in a few investigation sets but is difficult to get in someone else. Large-level reductions during the money growth would be in the highest-scale depressions or, in the event that done in the type of a reliable reform, no depression whatsoever” (p. 668). Lucas brings this conclusion mostly off run periods regarding hyperinflations (Sargent 1986) where major organization reforms was in fact for the high changes during the rising prices; whenever major reforms are not inside it, the data reveals a far more uniform effect of economic policy expansions and you may contractions toward genuine interest.
This similarity suggests a significant attribute off macroeconomics – concept are tightly related to empirical proof
Whenever you are Friedman and additionally troubled the genuine results of changes in economic coverage depends towards the whether they had been expected or not, Lucas displayed the fresh new hitting effects out of assuming that someone setting the criterion rationally. Lucas quit Friedman’s concept of a slow variations of standard mainly based with the earlier in the day advancements and instead troubled the submit-looking character out of standard. Expectations of upcoming economic easing or tightening often affect the economy today.
One consequence of so it perception could have been an alternate identification off the importance of credibility from inside the plan; that is, a reputable coverage–one that is specific and also for that main lender are held responsible–can determine the way in which someone mode their standards. Therefore, the consequences off rules steps by the a bank having trustworthiness can get end up being somewhat distinctive from those of a central lender that lacks dependability. While the empirical proof for dependability effects is weak, the brand new increased exposure of dependability has been a consideration promoting central banking institutions to style rules architecture one to embody credible responsibilities so you can lowest rising cost of living.
Some economists have begun so you’re able to question the new absolute speed effects that Lucas’s performs helped to advertise. Akerlof, Dickins, and you can Perry (1996), like, argue that also credible reasonable-rising prices formula will in all probability carry a cost when it comes to forever large unemployment hence a stable Phillips Contour tradeoff is present on low cost off inflation. It believe employee resistance to money wage incisions often limit the art of actual wages to regulate in the event that rate level are steady. Nevertheless efforts out of Friedman and you may Lucas provides clearly moved on the brand new argument because the very early 1970s. Now it is advocates out-of an excellent tradeoff just who depict the brand new fraction glance at.
Yet, when you are sharing a common approach, the 2 Nobel laureates worry different factors of your own relationship anywhere between theory, research, and policy.
Instance, Friedman and you will Lucas differ in their views on what are in charge having improves in our knowledge of money and you will production. Friedman anxieties this new role off empirical evidence. He argues the increasing proof your sixties classic Phillips Bend is erratic are important when you look at the pressuring brand new profession to adjust their convinced. As Friedman sets they, “the radical change who’s got took place accepted elite viewpoints is brought mostly of the scientific response to feel one to contradicted a great tentatively recognized hypothesis – just the classical procedure into revision off a technical hypothesis” (p. 453) .
In contrast, Lucas worries the character starred of the mathematical products inside the causing advances inside economics. As he notes, the results of cash to the cost savings involve new active reaction off economic agencies so you can alterations in rates, interest levels, and earnings. A lot of progressive macroeconomics include working out the newest implications away from these active solutions, as well as the growth of theoretical type these types of solutions might possibly be useless “with no of your own gadgets of contemporary statistical economics” (p. 669). Economists expected the 
proper official systems in advance of progress could well be generated inside understanding the vibrant nature of the individual decisions which affect the new economy’s conclusion over the years.