This paper surveys the recent literature on the theory of macroeconomic policy. We study the effect of various incentive constraints on the policy making process, such as lack of credibility, political opportunism, political ideology, and divided government. The survey is organized in three parts. Part I deals with monetary policy in a simply Phillips curve model: it covers credibility issues, political business cycles, and optimal design of monetary institutions. Part II deals with fiscal policy in a dynamic general equilibrium set up: the main topics here are credibility of tax policy, and political determinants of budget deficits. Part III studies economic growth in models with endogenous fiscal policy.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
6329.
Length: Date of creation: Dec 1997 Date of revision: Handle: RePEc:nbr:nberwo:6329
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Find related papers by JEL classification: E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
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