The Role of Economic Policy after the New Classical Macroeconomics
49 Pages Posted: 25 May 2006 Last revised: 4 Aug 2022
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The Role of Economic Policy after the New Classical Macroeconomics
The Role of Economic Policy after the New Classical Macroeconomics
Date Written: November 1980
Abstract
The paper considers the implications of the rational expectations New Classical Macroeconomics revolution for the 'rules versus discretion' debate. The following issues are covered: 1) The ineffectiveness of anticipated stabilization policy, 2) Non-clausal models and rational expectations, 3) Optimal control in non-causal models -- the inconsistency of optimal plans. I established the robustness of the proposition that contingent (closed-loop or feedback) rules dominate fixed (open-loop)rules. The optimal contingent rule in non-causal models -- the innovation or disturbance-contingent feedback rule -- is quite different from the state-contingent feedback rule derived by dynamic stochastic programming.
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