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Macroeconomic Theory$
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Jean-Pascal Benassy

Print publication date: 2011

Print ISBN-13: 9780195387711

Published to Oxford Scholarship Online: April 2015

DOI: 10.1093/acprof:osobl/9780195387711.001.0001

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Stabilization Policies

Stabilization Policies

Chapter:
(p.434) 18 Stabilization Policies
Source:
Macroeconomic Theory
Author(s):

Jean-Pascal Bénassy

Publisher:
Oxford University Press
DOI:10.1093/acprof:osobl/9780195387711.003.0018

This chapter tackles the problem of the stabilization policies of governments that emerge as responses to shocks on the economy. It describes the current trend of using microfounded models for policy analysis. It provides two examples of optimal policies with microfounded models: optimal seigniorage under uncertainty and the non-Walrasian “policy effectiveness” of Thomas Sargent and Neil Wallace. It looks into how government policy design avoids fiscal and monetary policies that create indeterminacies and therefore instability, and concentrates on monetary interest rate rules. It also highlights the Pigou effect and how the effect determines simple rules guaranteeing global determinacy.

Keywords:   stabilization, microfounded models, optimal seigniorage, policy effectiveness, Thomas Sargent, Neil Wallace, Pigou effect, global determinacy

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