Policy-ineffectiveness proposition

The policy-ineffectiveness proposition (PIP) is a new classical theory proposed in 1975 by Thomas J. Sargent and Neil Wallace based upon the theory of rational expectations, which posits that monetary policy cannot systematically manage the levels of output and employment in the economy. == Theory == Prior to the work of Sargent and Wallace, macroeconomic models were largely based on the adaptive expectations assumption.

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