IDEAS home Printed from
   My bibliography  Save this article

The Applicability of the Traditional Theory of Economic Policy


  • van Velthoven, Ben C J


The traditional theory of economic policy requires targets, instruments, an empirical economic model, and a social welfare or criterion function to be specified in order to derive the optimal economic policy. Empirical studies of reaction functions suggest that economic policy is carried out in some systematic manner, subject to interference from political factors. This survey addresses the problems of specifying, estimating and applying an economic model when economic policy is following a path specified by a reaction function. Attention is paid to rational expectations, the Lucas' critique, and the policy neutrality proposition. Lack of knowledge of the policymaker's objective function poses the most serious difficulty when applying the theory of economic policy. Various methods of determining this function are reviewed, and the possibility that policymakers might be satisficing is discussed. The role played by political factors is considered in the light of the public choice literature. Copyright 1990 by Blackwell Publishers Ltd

Suggested Citation

  • van Velthoven, Ben C J, 1990. " The Applicability of the Traditional Theory of Economic Policy," Journal of Economic Surveys, Wiley Blackwell, vol. 4(1), pages 59-88.
  • Handle: RePEc:bla:jecsur:v:4:y:1990:i:1:p:59-88

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jecsur:v:4:y:1990:i:1:p:59-88. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.