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Activist Monetary Policy for Good or Evil? The New Keynesians vs. the New Classicals

"Activist Monetary Policy for Good or Evil? The New Keynesians vs. the New Classicals" by Tom Stark and Herb Taylor delineates the essential elements of these two schools and explains why their positions on activist policy differ. It ties in with discussion of New Classical and nonclassical rational expectations models. Alternatively, instructors may wish to use this reading with the coverage of the activist/nonactivist policy debate.

  1. Compare the positions of the New Classicals and New Keynesians regarding:
    1. market competition
    2. flexibility of prices and wages
    3. speed of price and wage adjustments

  2. According to the New Classical view, what can be accomplished with an activist monetary policy? Why? How would New Keynesians respond to the New Classical views?

  3. If the New Classical view is correct, how should the Fed conduct monetary policy?
Source: "Activist Monetary Policy For Good or Evil? The New Keynesians vs. the New Classicals." Tom Stark and Herb Taylor, Federal Reserve Bank of Philadelphia Business Review, March/April 1991, 17-25.


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