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Stabilization Theory and Policy: 50 Years after the Phillips Curve

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  • Stephen J. Turnovsky

Abstract

This paper discusses the impact of A. W. H. Phillips' seminal contributions to stabilization policy on subsequent developments in that field. We review the policy rules introduced by Phillips and show how these relate to the optimal rules emerging from linear–quadratic optimization problems. The consequences of rational expectations for the design of optimal stabilization policy are discussed. These challenges arose from the role of ‘forward-looking’ variables, through issues such as the ‘Lucas Critique’ and the ‘time consistency’ of policy. The paper also discusses some of the contemporary aspects of stabilization policy, thereby highlighting the durability of Phillips' contributions.

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Bibliographic Info

Paper provided by University of Washington, Department of Economics in its series Working Papers with number UWEC-2008-09-FC.

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Date of creation: May 2008
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Publication status: Forthcoming in Economica
Handle: RePEc:udb:wpaper:uwec-2008-09-fc

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  1. Fair, Ray C & Taylor, John B, 1983. "Solution and Maximum Likelihood Estimation of Dynamic Nonlinear Rational Expectations Models," Econometrica, Econometric Society, vol. 51(4), pages 1169-85, July.
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  8. Hans Amman & David Kendrick, 2000. "Mitigation Of The Lucas Critique With Stochastic Control Methods," Computing in Economics and Finance 2000 182, Society for Computational Economics.
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  10. William Poole, 1970. "Optimal choice of monetary policy instruments in a simple stochastic macro model," Staff Studies 57, Board of Governors of the Federal Reserve System (U.S.).
  11. Gilles Oudiz & Jeffrey Sachs, 1985. "International Policy Coordination In Dynamic Macroeconomic Models," NBER Chapters, in: International Economic Policy Coordination, pages 274-330 National Bureau of Economic Research, Inc.
  12. Brock, William A. & Durlauf, Steven N. & Nason, James M. & Rondina, Giacomo, 2007. "Simple versus optimal rules as guides to policy," Journal of Monetary Economics, Elsevier, vol. 54(5), pages 1372-1396, July.
  13. Marcus Miller & Mark Salmon, 1985. "Policy Coordination And Dynamic Games," NBER Chapters, in: International Economic Policy Coordination, pages 184-227 National Bureau of Economic Research, Inc.
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  25. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
  26. Turnovsky, Stephen J., 1981. "The optimal intertemporal choice of inflation and unemployment An analysis of the steady state and transitional dynamics," Journal of Economic Dynamics and Control, Elsevier, vol. 3(1), pages 357-384, November.
  27. Martin Feldstein & James H. Stock, 1993. "The Use of Monetary Aggregate to Target Nominal GDP," NBER Working Papers 4304, National Bureau of Economic Research, Inc.
  28. Turnovsky, Stephen J, 1976. "Optimal Stabilization Policies for Stochastic Linear Systems: The Case of Correlated Multiplicative and Additive Disturbances," Review of Economic Studies, Wiley Blackwell, vol. 43(1), pages 191-94, February.
  29. Robert A. Mundell, 1962. "The Appropriate Use of Monetary and Fiscal Policy for Internal and External Stability," IMF Staff Papers, Palgrave Macmillan, vol. 9(1), pages 70-79, March.
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  33. Thomas J. Sargent, 1971. "The Optimum Monetary Instrument Variable in a Linear Economic Model," Canadian Journal of Economics, Canadian Economics Association, vol. 4(1), pages 50-60, February.
  34. Turnovsky,Stephen J., 1977. "Macroeconomic Analysis and Stabilization Policy," Cambridge Books, Cambridge University Press, number 9780521291873, November.
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Cited by:
  1. Turnovsky, Stephen J., 2011. "On the role of small models in macrodynamics," Journal of Economic Dynamics and Control, Elsevier, vol. 35(9), pages 1605-1613, September.

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