Revealed preferences in macroeconomic policy decisions

This paper extends the usual instrument-target framework by directly estimating macroeconomic policy preferences over a number of policy targets using a derived reduced form and then solving the nonlinear optimality conditions for optimal instrument choice. Solving the optimality equations using observations on predetermined variables yields the implicit set of preference weights which induced the observed choices. The derivation format parallels the integrability discussions about consumer preferences implicitly expressed through demand functions. The approach is applied to a simple macro model estimated over the period from 1955 through 1972.