Microfoundations and Stabilization Policy

I'm afraid I don't know this literature well. It's theoretically appealing idea, but how well it works in practice presumably depends on many things and varies across countries.

false choice. you can work with aggregate, and have expectations explicitly on the right hand side.

This has also led to excessive reliance on forward looking behaviours which do not match the reality.

There is absolutely no evidence that monetary policies have improved their capacity to stabilise the economy.

Just as one example: we know that the marginal propensity to consume varies widely in the population, depending on liquiditiy constraints, and that there are "poor" and "wealthy" hand-to-mouth. Modeling this improves the predictive power for policy effects.

These elegant models have greatly assisted understanding and have been useful for strategic planning. Their usefulness in tactical decision making has been less effective.

These enhanced macroeconomic models have probably shown that policy making is far more complex if it wishes to achieve a particular objective then previously thought. That’s why I don’t think that better performance of policy due to new models can be expected easily.

-see background information here

Better stabilization is a subproduct of better understanding.

It even deserves a Nobel Prize!