1 Optimal Policy Business Cycles
نویسندگان
چکیده
The effectiveness of economic policies depends on the nature of expectations. Under adaptive expectations, the Philipps curve allows a governement to "surprise" agents. Under rational expectations, there is less room for economic policies. We assume that only an (endogenously determined) proportion of agents form rational expectations and show that this leads the government to optimal policies which result in a policy cycle with real effects. JEL classification: C6, E10, E32. Corresponding author: Victor Ginsburgh, Université Libre de Bruxelles, C.P.139, 50, avenue F. Roosevelt, 1050 Brussels, Belgium. Email: [email protected] Published Journal of Economic Dynamics and Control 22 (1998), 503-518. * This research was undertaken under contract PAI n°26 financed by the Belgian Government. We are grateful to Russel Cooper, Bertrand Crettez and two referees for extermely helpful comments, as well as for references which we had missed.
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