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Macroeconomic policy: rules versus discretion

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  • Garabed Minassian

Abstract

This paper debates the foundations of the principles of macroeconomic policy. It traces through the development of the ideas forming the macroconomic policy and especially the cyclical transition from observance of firmly established rules to discretion and vice versa, to curbing freedom at formation of macroecnomic influences. Reasons are brought forward backing the advantages and disadvantages of discretion in comparison with the government based on strictly formulated rules. A special attention is given to the Bulgarian practices and tradition. A conclusion is drawn that the Bulgarian governing elite has not historically succeeded in taking advantage of the opportunities offered by the discretional government and as a rule has abused (consciously or unconsciously) the right of a greater governing freedom. On the contrary, when the macroeconomic government has had to observe concrete imperative restrictions the results have been predominantly positive. The Bulgarian practice confirms the theoretical result that the losses from badly conducted discretional macroeconomic policy on a national scale are much greater than the benefits from a possible well formulated and carried out policy. Resulting from the analysis, concrete suggestions are formulated, carrying the basic idea of abiding by clearly defined rules of fiscal policy and concentrating the efforts of the state on setting up and running relevant market institutions.

Suggested Citation

  • Garabed Minassian, 2002. "Macroeconomic policy: rules versus discretion," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 6, pages 3-30.
  • Handle: RePEc:bas:econth:y:2002:i:6:p:3-30
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    References listed on IDEAS

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    1. G. A. Mackenzie, 1989. "Are All Summary Indicators of the Stance of Fiscal Policy Misleading?," IMF Staff Papers, Palgrave Macmillan, vol. 36(4), pages 743-770, December.
    2. Vito Tanzi & Howell H. Zee, 1997. "Fiscal Policy and Long-Run Growth," IMF Staff Papers, Palgrave Macmillan, vol. 44(2), pages 179-209, June.
    3. Leslie Lipschitz & Alex Mourmouras & Timothy D. Lane, 2002. "Capital Flows to Transition Economies; Master or Servant?," IMF Working Papers 02/11, International Monetary Fund.
    4. Frank Hahn & Robert Solow, 1997. "A Critical Essay on Modern Macroeconomic Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 026258154x, January.
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    More about this item

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E66 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General Outlook and Conditions

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