On stabilisation policy: Are there conflicting implications for growth and welfare?

Dimitrios Varvarigos ()
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Dimitrios Varvarigos: Dept of Economics, Loughborough University

Discussion Paper Series from Department of Economics, Loughborough University

Abstract: The paper examines the choices for fiscal stabilisation policy that maximise aggregate welfare and long-run growth. This is done in the context of a stochastic dynamic general equilibrium model where premeditated learning provides the engine of human capital accumulation and growth, and technology shocks provide the impulse source of fluctuations. Contrary to existing conventional wisdom, the results indicate a conflict between the two policy objectives: the choice of no stabilisation, associated with maximum growth, is also associated with minimum welfare. Welfare maximisation requires a full stabilisation response to the occurrence of business cycles.

Keywords: money; growth; volatility. (search for similar items in EconPapers)
JEL-codes: E32 E63 O41 (search for similar items in EconPapers)
Date: 2006-07, Revised 2006-07
New Economics Papers: this item is included in nep-cba, nep-dge and nep-mac
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