Hostname: page-component-586b7cd67f-dsjbd Total loading time: 0 Render date: 2024-11-28T04:20:32.472Z Has data issue: false hasContentIssue false
  • English
  • Français

Macroeconomic Policy Rules Versus Discretion: Some Analytical Issues

Published online by Cambridge University Press:  28 November 2008

S. T. Sayer
S. T. Sayer
Affiliation:
Department of Economics, University of Edinburgh
Get access Rights & Permissions [Opens in a new window]

Abstract

In the extensive literature on the rules versus discretion debate three related, but logically distinct, areas of debate are frequently confused: the active versus passive policy debate, the rules versus discretion debate proper, and the open-loop (i.e. fixed) rule versus closed-loop (i.e. contingent) rule debate. Section 2 of this paper examines the nature of and interrelations between these three areas of debate. In section 3 the contributions of economic analysis to the debate are explored in an apolitical framework, in particular, the arguments for rules proposed by Friedman and Kydland and Prescott are assessed. Section 4 extends this framework to take into account the political dimension and the rules versus discretion debate is viewed as a cost-benefit problem involving both political and economic factors. A general conclusion is that since the rules versus discretion debate is an exercise in political economy, the debate cannot be properly assessed in the sterile apolitical framework of pure economic analysis.

Type
Articles
Information
Journal of Public Policy , Volume 1 , Issue 4 , October 1981 , pp. 465 - 479
Copyright
Copyright © Cambridge University Press 1981

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Bagehot, W. (1963) The English Constitution. London: Fontana.Google Scholar
Breton, A. (1974) The Economic Theory of Representative Government. Chicago: Aldine Publishing Company.Google Scholar
Buchanan, J. and Wagner, R. (1977) Democracy in Deficit. New York: Academic Press.Google Scholar
Buchanan, J. and Wagner, R. (eds.) (1978) Fiscal Responsibility in Constitutional Democracy. Leiden: Martinus Nijhoff.CrossRefGoogle Scholar
Buiter, W. (1980a) The macroeconomics of Dr Pangloss: a critical survey of the New Classical Economics, Economic Journal, 90, 34–50.CrossRefGoogle Scholar
Buiter, W. (1980b) The superiority of contingent rules over fixed rules in models with rational expectations. Bristol University Discussion Paper.Google Scholar
Cook, S. and Jackson, P. (eds.) (1979) Current Issues in Fiscal Policy. Oxford: Martin Robertson.Google Scholar
Dornbusch, R. and Fischer, S. (1978) Macroeconomics. New York: McGraw Hill.Google Scholar
Downs, A. (1957) An Economic Theory of Democracy. New York: Harper & Row.Google Scholar
Fischer, S. (ed.) (1980) Rational Expectations and Macroeconomic Policy. Chicago: University of Chicago Press.Google Scholar
Friedman, M. (1948) A monetary and fiscal framework for economic stability, American Economic Review, 38, 245–64.Google Scholar
Friedman, M. (1960) A Program for Monetary Stability. New York: Fordham University Press.Google Scholar
Friedman, M. (1968) The role of monetary policy, American Economic Review, 58, 1–17.Google Scholar
Friedman, M. (1970) The Counter-Revolution in Monetary Theory. London: Institute of Economic Affairs (Occasional Paper 33).Google Scholar
Hall, R. (1980) Comment on papers by Lucas and Fischer. In Fischer, S. (ed.) Rational Expectations and Economic Policy. Chicago: University of Chicago Press.Google Scholar
Kydland, F. and Prescott, E. (1977) Rules rather than discretion: the inconsistency of optimal plans, Journal of Political Economy, 85, 473–91.CrossRefGoogle Scholar
Keynes, J. M. (1936) The General Theory of Employment, Interest & Money. London: Macmillan.Google Scholar
Laidler, D. (1981) Monetarism: an interpretation and an assessment, Economic Journal, 91, 1–28.Google Scholar
Lucas, R. (1980) Rules, discretion and the role of the economic advisor. In Fischer, S. (ed.), Rational Expectations and Economic Policy. Chicago: University of Chicago Press.Google Scholar
Modigliani, F. (1977) The monetarist controversy or should we forsake stabilisation policies?, American Economic Review, 67, 1–19.Google Scholar
Moggridge, D. (ed.) (1974) Keynes, Aspects of the Man and His Work. London: Macmillan.Google Scholar
Nordhaus, W. (1975) The Political business cycle, Review of Economic Studies, 42, 169–90.Google Scholar
Okun, A. (1972) Monetary-fiscal activism: some analytical issues, Brookings Papers on Economic Activity, part I, 123–63.Google Scholar
Rawls, J. (1955) Two concepts of rules, Philosophical Review, 64, 3–32.Google Scholar
Sargent, T. and Wallace, N. (1975) Rational expectations, the optimal monetary instrument and the optimal money supply rule, Journal of Political Economy, 83, 241–54.Google Scholar
Skidelsky, R. (1976) Keynes and the revolt against the Victorians, Spectator, 1 May, 15.Google Scholar
Smart, J. (1956) Extreme and restricted utilitarianism, Philosophical Quarterly, 6, 344–54.CrossRefGoogle Scholar
Smart, J. (1973) An Outline of a system of utilitarian ethics. In Smart, J. and Williams, B., Utilitarianism For and Against. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
Smith, A. (1776) The Wealth of Nations.Google Scholar
Wagner, R. (1977) Economic manipulation for political profit: macroeconomic consequences and constitutional implications, Kyklos, 30, 395–410.Google Scholar