action lag | Period between the time a policy is decided on and the time it is implemented.
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activist policies | Policies that respond to the current state of the economy and try to stabilize output.
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activist rules | Rules that have countercyclical features.
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automatic stabilizer | Policy that reduces the impact of an economic shock without
requiring case-by-case intervention. Proportional income taxes and unemployment insurance are examples.
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certainty-equivalence policy | A policy made under the assumption that there is no uncertainty regarding future events.
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credibility | The degree to which the public believes that the government will implement its announced policies.
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decision lag | Period of time required to decide on the proper response to a macroeconomic–shock.
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discrete lag | Time that passes before an effect is felt. Contrast distributed lag.
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distributed lag | Time that passes while an effect gradually accumulates. Contrast discrete lag.
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dynamic inconsistency | Tendency of optimal policy to be different at different points
in time.
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dynamic programming | A way of solving a problem by working backward through time; choices made at one point in time anticipate choices that will need to be made later.
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econometric model | Model used to make quantitative economic predictions.
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fine tuning | Continuous attempts to stabilize the economy in the face of small disturbances.
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indicators | Economic variables that signal us as to whether we are getting close to our desired targets.
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inflation targeting | Using monetary and fiscal policy to achieve a particular inflation rate.
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inside lag | Period between the time a disturbance occurs and the time action is taken.
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instruments | The tools policymakers manipulate directly to affect the economy.
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loss function | A rule used to evaluate the success of a policy. It measures the damage done when the policy misses its target.
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marginal loss function | Measures the change in the loss function from a small change in the policy instrument.
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multiplier uncertainty | Uncertainty about effects of policy changes due to uncertainty about value of fiscal policy multiplier, monetary policy multiplier, and so on.
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outside lag | Time required for a policy change to take effect.
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portfolio of policy instruments(diversification) | The range of policy instruments available to the policymaker.
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real GDP targeting | Using monetary and fiscal policy to achieve a particular rate of real GDP growth.
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recognition lag | Period between the time a disturbance occurs and the time policy-makers discover the disturbance.
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rules versus discretion | The issue of whether or not monetary and fiscal authorities
should conduct policy in accordance with preannounced rules.
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targets | Identified goals of policy.
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