Autori
Acocella, Nicola
Di Bartolomeo, Giovanni
Hughes Hallett, Andrew

Titolo
Policy and controllability under rational expectations
Periodico
Università degli Studi di Roma "La Sapienza" - Dipartimento di Studi Geoeconomici, Linguistici, Statistici e Storici per l'Analisi regionale. Working papers
Anno: 2009 - Fascicolo: 52 - Pagina iniziale: 1 - Pagina finale: 14

Economic theory does not have a formal model of how policy announcements affect economic performance or could be used to manage expectations. We show that rational expectations do not affect the controllability of an economic system, in either its static or its dynamic versions, even though their introduction in particular cases may make it impossible for the policymaker to determine certain variables because of policy neutrality or time inconsistency problems. The controllability conditions stated by Tinbergen and subsequent authors therefore continue to hold under rational expectations. Indeed, we find that when they are satisfied the presence of rational expectations may even enhance our power to control an economy over time. This is important because it shows that an underlying equilibrium can exist, even if some of our traditional policy exercises lead to invariance or time inconsistency. For example, it provides the theoretical justification for the recent literature on anchoring expectations so that monetary policy becomes effective enough for the central bank to achieve and maintain low inflation.



Testo completo: http://geostasto.eco.uniroma1.it/utenti/acocella/english/96%20WPaper_%20No_52.pdf

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