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http://www.businessweek.com/1997/09/b3516111.htmexcerpt: The couple has been collaborating professionally for more than a decade. At Berkeley, they conducted groundbreaking research that refuted prevailing wisdom about how the economy functions (table). In the 1970s, economists such as Robert E. Lucas Jr. of the University of Chicago had argued that using monetary and fiscal policy to move the economy was futile, since people adjust their behavior in ways that negate the policy changes. This ''rational expectations'' theory gained widespread acceptance at the expense of the Keynesian school, which held that the government could act to smooth out business cycles.
But in a landmark 1985 paper, Yellen and Akerlof argued that individuals lacked the time and resources to conduct the intensive research. Such a deviation from Lucas' assumptions, when magnified, might mean that an interest-rate cut could have a major impact on the economy. Former Fed Vice-Chairman Alan S. Blinder says the couple's research ''has given theoretical economic underpinnings to the New Keynesian school,'' which explains why government intervention in the economy is sometimes justified.
RELUCTANT AT FIRST. Yellen, who was sworn in to the CEA job on Feb. 13, has quietly emerged as a forceful figure on her own. As a Fed governor since 1994, she helped convince fellow governors that downsizing and foreign outsourcing was enabling the economy to run with lower unemployment and less inflation than was thought possible. Last fall, Yellen and Fed Chairman Alan Greenspan joined in arguing that the strong economy wouldn't trigger an inflationary spike--a call that appears shrewd today. ''Janet pushed for more conceptual analysis within the Fed,'' says one central bank colleague. ''She wanted the Fed to ask less 'What's the Chicago Purchasing Managers Index?' and more 'What are the broader forces affecting the economy?'''
...more...:puke: :hitsheadonwall:
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