The Role of Policymakers in Business Cycle Fluctuations

This book's central theme is that a policymaker's role is to enhance the public's ability to coordinate economic activities.

Jim Granato (Author), M. C. Sunny Wong (Author)

9780521390767, Cambridge University Press

Paperback, published 21 July 2011

318 pages
21.6 x 14 x 1.8 cm, 0.41 kg

Review of the hardback: ' … the book can be strongly recommended to students and scholars of political economy in the United States and beyond. it is most appropriate for advanced undergraduate courses that require a sound background in macroeconomics and for graduate science courses in political economy.' Professor Richard Rose, Centre for the Study of Public Policy

This book's central theme is that a policymaker's role is to enhance the public's ability to coordinate their price information, price expectations, and economic activities. This role is fulfilled when policymakers maintain inflation stability. Inflation persists less when an implicit or explicit inflation target is met. Granato and Wong argue that inflation persistence is reduced when the public substitutes the prespecified inflation target for past inflation. A by-product of this co-ordination process is greater economic stability. In particular, inflation stability contributes to greater economic output stability, including the potential for the simultaneous reduction of both inflation and output variability - inflation-output co-stabilization (IOCS). Granato and Wong use historical, formal, and applied statistical analysis of business-cycle performance in the United States for the 1960 to 2000 period. They find that during periods when policymakers emphasize inflation stability, inflation uncertainty and persistence were reduced.

Part I. The Interaction of Policy and Outcomes: 1. Coordinating price information
2. Outcomes and policy: an illustration
3. Policy evolution: 1960 to 2000
Part II. The Role of Policymakers: 4. The theoretical model
5. Policy and aggregate variability
6. The optimal policymaker role
Part III. Coordination Dynamics: 7. Coordinating inflation forecasts
8. Inflation-stabilizing policy: robustness
9. Conclusion and implications.

Subject Areas: Business & management [KJ], Finance [KFF], Political economy [KCP], Politics & government [JP]