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Stabilization Theory and Policy: 50 Years after the Phillips Curve

  • Stephen J. Turnovsky

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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File URL: http://www.econ.washington.edu/user/sturn/Phillips-plenary.pdf
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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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