| Abstract: | This paper reviews recent developments in the theory of stabilization policies since the rational expectations revolution. The debate about the neutrality proposition is omitted, and attention is directed at the policy evaluation and the time-inconsistency propositions. It is argued that the open-loop rule of the Friedman type is justifiable only with neutrality, since the techniques of policy evaluation can take into account the restrictions implied by rational expectations. The game-theoretic analyzes by Robert Barro and Donald Gordon support the idea of rules rather than discretion in a novel way, but it is shown that a different reputation mechanism can lead to the “ideal” outcome which is not an equilibrium in the Barro-Gordon analysis. |
