Score contribution per author:
α: calibrated so average coauthorship-adjusted count equals average raw count
This paper describes the emerging consensus about the "reaction function" approach to macroeconomic policy. The first section of the paper describes the historical emergence of this consensus, as a synthesis of pre-Keynesian, Keynesian, and monetarist ideas. The theoretical part of the paper presents the basic framework of the approach and explains a number of extensions, including: finding the optimal reaction function, avoiding the problem of inflation bias, the relevance of the Taylor rule, forward-looking expectations, extensions to the open economy, and the interconnections between monetary and fiscal policy. The later parts of the paper contain a detailed discussion of some of the practical and institutional issues involved in the implementation of this new framework. Copyright 2000 by Oxford University Press.