Third, longer-run economic growth would still be driven by human capital accumulation and technological progress, as always, but without the accompanying stabilization policy
as conventionally practiced from 1984-2007.
A stabilization policy
is followed by the government in order to smooth the fluctuations of economic activity over the cycle.
Fiscal policy will be governed partly by the level of general government net lending in relation to the surplus target, and partly by stabilization policy
needs, if any.
In The Effects of Stabilization Policy
section we have shown that optimal policy leads to no correlation between policy and inflation if the effect of the policy is known precisely.
Therefore, there is a clear indication that the enlargement of the monetary union could, on average, increase stability for the EMU-12, although in some cases the performance of stabilization policy
instruments might deteriorate.
Although society would be much better off if these permanent shocks were avoided, this is not a cost that could be avoided by conventional stabilization policy
This suggests that the Federal Reserve's price stabilization policy
has credibility--participants believe the Fed will not allow inflation to accelerate in response to the energy price shocks.
In "Optimal Stabilization Policy
when Wages and Prices Are Sticky: The Case of a Distorted Steady State," Pierpaolo Benigno and Michael Woodford consider the optimal design of monetary policy when both prices and wages display considerable inertia.
He applied it to testing the credibility of the stabilization policy
implemented by Israel between 1982 and 1987.
Thus, this year's symposium explored the potential scope for stabilization policy
in this new environment.
Capital Mobility and Stabilization Policy
under Fixed and Flexible Exchange Rates," Canadian Journal of Economics and Political Science 29, pp.