A central tenet of the so-called new consensus view in macroeconomics is that there is no long-run trade-off between inflation and unemployment. The main policy implication of this principle is that all monetary policy can aim for is (modest) short-run output stabilization and long-run price...

Popper recognizes that there are, at least, two versions of his 'Rationality Principle' (RP) yet he does not explain either how they relate to other parts of his works or which version social scientists should adopt. We argue that Popper's formulation of RP can be upgraded by explicitly...

We present a simple theoretical framework that integrates the notion of the natural or neutral interest rate, liquidity preference theory, and the monetary policy practice by modern central banks. We claim that this theory explains the conditions under which an economy will experience an...

David Romer has proposed a new basic macroeconomic framework: the IS-MP-IA model. Its proponents claim that it represents the `modern` view of macroeconomics. We show that the new framework remains closely attached to the neoclassical synthesis and, in addition, does not take account of: (i) the...

The rational expectations hypothesis (REH) is the standard approach to expectations formation in macroeconomics. We discuss its compatibility with two strands of Karl Popper's philosophy: his theory of knowledge and learning, and his "rationality principle" (RP). First, we show that the REH is...

We analyse the dynamic behaviour of an economy where the central bank (CB) sets interest rates according to a Taylor-type policy rule. A simple model for a closed and instability-prone economy is constructed and subjected to formal dynamical analysis and numerical simulation. It is shown that a...