Must-Read: Robert Lucas (2001): Bald Peak
Must-Read: Jackson Hole 2015 Weblogging: As best as I can see, Robert Lucas is here saying that at the very same moment that Paul Volcker managed to push the U.S. unemployment rate up to 10% via monetary policy, he–Robert Lucas–was convinced by Ed Prescott’s “new style of comparing theory to evidence” that “monetary shocks were just not pulling their weight” in providing a potential explanation of short-run movements in production and employment.
No, Paul Romer, I will not let you blame this style of thought on the fact that Bob Solow was mean to Robert Lucas at Bald Peak. The reason that Bob Solow was mean to Robert Lucas at Bald Peak was that this episode was and is characteristic of how Bob Lucas does business:
Bald Peak: “In October, 1978—leaf season—the Federal Reserve Bank of Boston sponsored a conference at the Bald Peak Colony Club in New Hampshire…(2001):
…Though I did not see it at the time, the Bald Peak conference also marked the beginning of the end for my attempts to account for the business cycle in terms of monetary shocks…. Ed Prescott presented a model… that was a kind of mixture of Brock and Mirman’s model of growth subject to stochastic technology shocks and my model of monetary shocks…. As they gained more experience through numerical simulations of their Bald Peak model, Kydland and Prescott found that the monetary shocks were just not pulling their weight: By removing all monetary aspects of the theory, they obtained a far simpler and more comprehensible structure that fit postwar U.S. time series data just as well as the original version.
Besides introducing an important substantive refocusing of business cycle research, Kydland and Prescott introduced a new style of comparing theory to evidence that has had an enormous, beneficial effect on empirical work in the field…