Munich Personal RePEc Archive

A trade-off criterion for evaluating effectiveness and reliability of alternative policy actions

Bianchi, Carlo and Brillet, Jean-Louis and Calzolari, Giorgio (1988): A trade-off criterion for evaluating effectiveness and reliability of alternative policy actions. Published in: Atti del Dodicesimo Convegno A.M.A.S.E.S. No. Palermo, 14-16 Settembre 1988 (14. September 1988): pp. 185-217.

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Abstract

The evaluation of policy actions by means of macroeconomic models often begins with the analysis of multipliers. A rough analysis recommends to use those instruments that exhibit large multipliers. Government budget usually imposes some constraints on the policy action. Insted of the raw multiplier, a trade-off criterion could measure the effect of a variation of the instrument associated with a given cost in terms of government deficit. The trade-off criterion can be computed from the macroeconomic model, and this paper shows how to associate a standard error to the point estimate, thus providing a measurement of reliability of the policy instrument.

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