Destabilizing optimal policies in the business cycle
It is often believed that governments should either abstain from leading activist policies, or if they lead such policies, that these policies should somehow be “stabilizing”, in the sense of reducing the volatilities of some endogenous variables. We construct a model with explicit foundations where the optimal policies are activist, and they make both employment and output more volatile than in the no intervention case.
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Volume (Year): 36 (2012)
Issue (Month): 9 ()
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