The new classical macroeconomics is the current of economic thought whose theoretical base is based on classical monetarist principles and neoclassical economics.
This new trend has developed and refined the principles of market equilibrium and the assumptions about the behavior of economic agents . Remember that classical and monetarist theories teach that prices and wages are flexible and they tend to balance the market. Likewise, remember that in relation to the behavior of individuals they assume that they are rational and that they act in the economy seeking their own interest. Information is intelligently processed creating expectations about the future.
Of the group of leading economists who gave rise to this current of macroeconomic thought, the following are present:
- Robert Barro
- Robert Lucas
- Thomas Sargent
- Neil Wallace
- Edward Prescott
Of these pillars of the economy, Robert Lucas for his extraordinary contribution is considered the father of this economic doctrine called the new classical macroeconomics. This for the year 1973 developed a whole theoretical body on what he called rational expectations. Its foundations are derived from the well-known adaptive expectation theory developed by economist John Muth in 1961, which was the theoretical underpinning of the monetarists. In short, what rational expectations theory expresses is that business cycles are due to unplanned or surprising changes in monetary policy .
Representatives of the new macroeconomics argue that discretionary economic and monetary policy and cause wrong signals in the economy. For this reason, they consider that governments should not act in the economy through demand. They believe that the role of governments to act is through supply.
Historical aspect of the new classical macroeconomics
As regards macroeconomics, until the emergence of the doctrine of the new classical macroeconomics, it was wrapped in Keynesian theories . The theoretical foundations of the new macroeconomics are diametrically opposed to the theories of the Keynesian current.
Novelty of the new classical macroeconomics
The new classical macroeconomics brought a new way, not only for the understanding of macroeconomics, but for the application of economic policy whose recipes were faithfully applied in various economies around the world.
Incorporation of Robert Lucas’s theory of rational expectations in macroeconomic studies resulted in a new way of applying economic and monetary policy.