And that means that the actual outcomes of, state, a boost in currency increases you certainly will, the theory is that, feel expansionary otherwise contractionary, according to the public’s expectations
In the Nobel lecture, Lucas notes that when you find yourself clear facts can be found you to average inflation pricing and you can mediocre currency development rates are tightly connected: “The brand new observance those funds changes trigger efficiency changes in an equivalent recommendations receives confirmation in a number of investigation sets but is difficult to get in others. Large-level reductions inside currency growth are going to be associated with large-size depressions otherwise, if carried out in the type of a credible change, and no despair whatsoever” (p. 668). Lucas brings which conclusion mostly regarding work with symptoms out of hyperinflations (Sargent 1986) where major institutional reforms had been in the higher transform from inside the rising cost of living; when big reforms are not involved, the evidence shows a very consistent effectation of financial policy expansions and you can contractions with the real pastime.
So it similarity suggests an essential trait of macroeconomics – concept was firmly linked with empirical proof
When you’re Friedman and troubled that actual effects of changes in financial rules is based towards if they was in fact anticipated or otherwise not, Lucas presented the new hitting ramifications out of provided someone mode their expectations rationally.