The new classical economists see policymakers' options quite differently than the old medicine prescribers do. Since, the new classicals say, there is no tradeoff between inflation and economic growth, there is no such thing as a good recession. In fact, to combat inflation, they say, we don't need any kind of recession. What we need is a well-designed monetary policy aimed at reducing inflation, one that is both predictable and credible so that it has little effect on real wages. The way to make a policy predictable is to keep it as simple as possible and communicate it well in advance of policy actions.
Credibility comes with experience.
Thus, if the Federal Reserve announces that its objective is to reduce inflation from 5 percent to 2.5 percent over the next several years by gradually reducing money supply growth, then its credibility depends on its demonstrated willingness to follow through. With a predictable and credible policy to reduce inflation, real economic activity does not have to be affected. As we have seen, theoretically, the rate of change in the overall price level can decline without reducing employment and output. This theory is supported by several recent studies of countries that devised successful policies to control inflation. Yet by announcing and following a credible price stabilization policy, they were able to end that inflation within a relatively short time and without disrupting real economic activity.