Working Paper: NBER ID: w0580
Authors: Willem H. Buiter
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.
Keywords: No keywords provided
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| anticipated policies (J18) | economic outcomes (F61) |
| unanticipated policies (E60) | economic outcomes (F61) |
| type of policy (anticipated vs. unanticipated) (G52) | economic behavior (D22) |
| anticipated policies (J18) | joint probability density functions of real economic variables (C51) |
| rational expectations (D84) | policy effectiveness (D78) |