Book: Should Policy Makers Be Restrained Flashcards
What is the stability of growth pact in the euro area
A legal limit to budget deficit to be under 3%
What is the case for putting restraint on policymakers
Because they compete for votes and are subject to corruption and short term demands
What concerns may macroeconomists have if policymakers raise the interest rate to combat unemployment
Is the unemployment close to the natural rate (if it is increased interest will lead to inflation), is it transitory (if not it will affect stock prices and exchange rate). Lastly how long is the time lag (if it is too slow it is meaningless)
Should policymakers do less when uncertain
Yes, it will lead to a safer range of outcomes
What does economists mean by games
Strategic interactions between entities trying to win by predicting the others future interactions
What is time inconsistency of optimal policy in regards to game theory
The innocent to deviate from announced policy once the other player had made a move
How can one establish credibility of public financial institutions
Creating independence of f.ex the central bank, legally bind them to stay within commitment, elect conservative central bankers that care less about unemployment than the elected government and mist importantly show commitment to honesty over time
What is the political business cycle
The idea that politicians have the incentive to speed up the economy around elections which is detrimental to medium term growth
What is the starve the best strategy
Forcing future administrations to cut spending by driving up the deficit, the other administration can then do the same in a war of attrition
What is a Paygo rule
The pay as you go tule cancels government transfers that does not lead to growth in the future
What are spendings caps
Limits on spending that can only be broken during an emergency
