Real business-cycle theory: Wisdom or whimsy

The answers to these questions obviously matter from the perspective of optimal public policy. But just as important, the perceived answers also matter because they influence the research agenda of macroeconomists. Around 1977 it seemed just as obvious to the representative graduate student as it was to Milton Friedman or Robert Lucas that monetary instability is a 5 1 4 T E ST I N G critical determinant of aggregate output fluctuations. Granted there was substantial disagreement about the nature of the relationship between monetary and real phenomena. But the critical point is that those years were marked by enormous amounts of research aimed at understanding the propagation mechanisms by which monetary policy affects aggregate economic activity. That this was a critical item for business-cycle research was, by and large, simply taken for granted.