Effectiveness versus reliability of policy actions under government budget constraint: the case of France
The evaluation of policy actions by means of a large scale econometric model often begins with the analysis of multipliers. A large value of a multiplier, with the right sign, suggests that the policy instrument should be very effective in moving up or down the given target variable. However, government budget usually imposes some constraints on the policy action, so that the important criterion should not be the raw multiplier but a trade-off criterion which measures the effect of a variation of the Instrument associated with a given cost in terms of government deficit: in other words a trade-off criterion. The larger the trade-off criterion, the more effective is expected to be the policy action. Effectiveness cannot, however, be the only guideline for the decision maker. The trade-off criterion which is computed from the macroeconomic model is obviously affected by uncertainty to some extent; a criterion which appears to be strongly effective might at the same time be affected by a high degree of uncertainty as to recommend against its use.
|Date of creation:||17 Aug 1985|
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