 Macroeconomic Policy Design and Control Theory - A Failed Partnership?David Currie No 36, CEPR Discussion Papers from Centre for Economic Policy Research Abstract: This paper provides a general review of recent developments in the application of control theory to macroeconomic policy design. It starts by highlighting the crucial difference between the engineering and economic control problem, in that the latter, unlike the former, is concerned with the control of intelligent systems. It examines the problems that this creates for macroeconomic policy formulation, and considers the usefulness of the rational expectations assumption in this context. Policy formulation is then analysed in the context of an interdependent world, and the dangers of single country policy optimisation are highlighted. It is argued that the most pressing issue is that of formulating appropriate rules, supported by penalty strategies, for the orderly conduct of macroeconomic policy in an international setting. The paper concludes by examining the conduct of United Kingdom macropolicy over the past five years, arguing that greater attention to issues of macropolicy design would have avoided some serious deficiencies in the conduct of policy. Keywords: Control Theory; Game Theory; Macroeconomic Policy; Rational Expectations (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:36 Ordering information: This working paper can be ordered from Access Statistics for this paper More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK. |
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