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What is Lucas Surprise Model and Phillips Curve about?

This document summarizes key aspects of New Classical economics and the Lucas surprise model. It discusses how the model shows that unexpected changes in money supply affect real output, while expected changes only impact inflation. The model generates a Phillips curve relationship between output and inflation. However, the Lucas critique notes that policy interventions may change economic relationships over time as expectations adjust. The document also reviews empirical tests of the model

Author

Tanuj Singh

Language

EN