Optimal policy business cycles

✍ Scribed by Victor Ginsburgh; Philippe Michel

• Book ID: 104293534
• Publisher: Elsevier Science
• Year: 1998
• Tongue: English
• Weight: 889 KB
• Volume: 22
• Category: Article
• ISSN: 0165-1889
• DOI: 10.1016/s0165-1889(97)00074-2

✦ Synopsis

The effectiveness of economic policies depends on the nature of expectations.

Under adaptive expectations, the Philipps curve allows a governement to 'surprise' agents. Under rational expectations, there is less room for economic policies. We assume that only an (endogenously determined) proportion of agents form rational expectations and show that this leads the government to optimal policies which result in a policy cycle with real effects. SC