"In central banking circles, it is viewed as obvious that the accumulation and destruction of reputational capital more closely resembles adaptive than rational expectations — it lags behind reality. Here, I think, the central bankers are closer to the truth than the economic theorists."

“Economists have the least influence on policy where they know the most and are most agreed; they have the most influence on policy where they know the least and disagree most vehemently.”

“Keynesian economics is the economics of nominal rigidities basically, nominal rigidities everywhere. Fully anticipated money does affect output. Everybody can see that! So, it's right. The fact that it's not as theoretically tidy as Lucas's 1972 Journal of Economic Theory paper is not a reason to throw it away. That's become a minority view in this profession, unfortunately. It wouldn't have been in the '60s.”

“First and foremost, Keynesian economics is a theory of aggregate demand and of the effects of aggregate demand on real output and inflation.”

“The word ‘Keynesian’ means many things to many people. Decades ago, it was a carelessly applied label for economic liberals and interventionists in general. For a while in the late 1970s and early 1980s it became a pejorative term more or less synonymous with old-fashioned.”

“For a period of roughly 35 years, Keynesian theory provided a central paradigm for macroeconomists, and considerable progress was made on several empirical fronts. It was widely recognized that some of the ingredients of Keynesian economics rested on slender to non-existent microtheoretic foundations; and there were always dissenters. But, thought of as a collection of empirical regularities that fit together into a coherent whole, the theory worked tolerably well. In the 1970s, however, the Keynesian paradigm was rejected by a great many academic economists, especially in the United States, in favour of what we now call new classical economics. By about 1980, it was hard to find an American academic macroeconomist under the age of 40 who professed to be a Keynesian. That was an astonishing intellectual turnabout in less than a decade, an intellectual revolution for sure.”

“Monetary policy decisions tend to regress toward the mean and to be inertial—and hence biased in just the same way that adaptive expectations are biased relative to rational expectations. But errors like that, while systematic, will generally be small and will tend to shrink over time. And, in return, the system builds in natural safeguards against truly horrendous mistakes.”