| Abstrakt: |
This paper investigates the consequences of activist policy in a small, aggregate macroeconomic model which embodies traditional hypotheses of price and output determination. It is shown that deterministic control problems with inflation and full employment as objectives may be solved, but multiple-target stochastic control problems will lead to instability in both the targets and the policy instrument. These propositions result from the characteristics of the stochastic disturbances in inflation and output equations. A small model is estimated, and its error processes analyzed, to determine that these characteristics may reasonably be replicated in an empirical model. The instability propositions thus appear to have relevance to the formulation of current activist policy. |
