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The Role of Economic Policy after the New Classical Macroeconomics

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  • 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.

Suggested Citation

  • Willem H. Buiter, 1980. "The Role of Economic Policy after the New Classical Macroeconomics," NBER Working Papers 0580, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:0580
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    1. Barro, Robert J, 1977. "Unanticipated Money Growth and Unemployment in the United States," American Economic Review, American Economic Association, vol. 67(2), pages 101-115, March.
    2. Willem H. Buiter, 1980. "The Role of Economic Policy After the New Classical Macroeconomics," NBER Technical Working Papers 0006, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Willem H. Buiter, 1981. "A Note on the Solution of A Two-Point Boundary Value Problem Frequently Encountered in Rational Expectations Models," NBER Technical Working Papers 0012, National Bureau of Economic Research, Inc.
    2. Willem H. Buiter, 1984. "Policy evaluation and design for continuous time linear rational expectations models: some recent development," NBER Technical Working Papers 0034, National Bureau of Economic Research, Inc.
    3. Buiter, Willem H., 1983. "Real effects of anticipated and unanticipated money : Some problems of estimation and hypothesis testing," Journal of Monetary Economics, Elsevier, vol. 11(2), pages 207-224.
    4. Willem H. Buiter, 1980. "The Role of Economic Policy After the New Classical Macroeconomics," NBER Technical Working Papers 0006, National Bureau of Economic Research, Inc.

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