But even as Monetarism subspecies four was failing its empirical test, large elements of Monetarism subspecies three-Classic Monetarism-were achieving their intellectual hegemony. For under normal circumstances monetary policy is a more potent and useful tool for stabilization than it fiscal policy. The frictions that give slope to the expectational aggregate supply curve are key causes of business cycle fluctuations. The natural rate hypothesis has strong empirical support, and does mean that fluctuations are best analyzed as being about trend rather than being beneath potential. It is better to analyze macroeconomic policy by considering the long-run implications of rules. And any sound view of stabilization policy must recognize how limited are its possibilities for success.
These insights survive, albeit under a different name than "Monetarism." Perhaps the extent to which they are simply part of the air that modern macroeconomists today believe is a good index of their intellectual hegemony.
travis