The paper investigates the robustness of the proposition that in stochastic models contingent or feedback rules dominate fixed or openloop rules. Four arguments in favour of fixed rules are considered. 1) The presence of an incompetent or malevolent policy maker. 2) A trade-off between flexibility and simplicity or credibility. 3) The New Classical proposition that only unanticipated (stabilization) policy has real effects. 4) The "time-inconsistency" of optimal plans in non-causal models, that is models in which the current state of the economy depends on expectations of future states. The main conclusion is that the "rational expectations revolution", represented by arguments (3) and (4) does not affect the potential superiority of (time-inconsistent) closed-loop policies over (time-inconsistent) open-loop policies. The case against conditionality in the design of policy must therefore rest on argument (1) or (2) which predate the New Classical Macroeconomics.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
file. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Publisher Info
Paper provided by National Bureau of Economic Research, Inc in its series NBER Technical Working Papers with number
0009.
Length: Date of creation: Dec 1981 Date of revision: Publication status: published as Buiter, Willem H. "The Superiority of Contingent Rules over Fixed Rules in Models with Rational Expectations." The Economic Journal, Vol. 91, (September 1981), pp. 647-670. Handle: RePEc:nbr:nberte:0009
Note: ITI IFM Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A. Phone: 617-868-3900 Email: Web page: http://www.nber.org More information through EDIRC
For technical questions regarding this item, or to correct its listing, contact: ().
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)
Roberds, William, 1987.
"Models of Policy under Stochastic Replanning,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(3), pages 731-55, October.
[Downloadable!] (restricted)