Subject Index

accountability, 104, 253, 260, 263, 269, 270, 274, 277, 285, 287, 307, 315, 317, 323

adverse selection, 253, 257, 260, 272 anarchy, 10, 277

announcement, 127, 132, 146, 160, 161, 163, 165, 177, 180, 183, 253, 256, 261, 266, 268, 278, 318, 320, 322

anticipatory effect, 162 appropriate assignment, 203 Arrow's impossibility, 34, 59, 62, 83 Asset (price) bubble, 102, 112, 175, 186, 191, 208, 221, 232, 255, 257

asymmetric information, 33, 57, 61, 90, 259, 272, 278

balance of payments, 6, 18, 39, 50, 51, 245

Barro-Ricardo effect, 73, 75

Basel III, 189, 190

Bologna Declaration, 310

Bretton Woods, 18, 52, 73, 245, 322 BRICS, 171, 243, 249

bubble.

capabilities, 88, 89, 303, 311 capture of policymakers, 60, 272, 277, 309

cardinal measurability

and possibility of defining social preferences, 85

ceiling on public debt, 79, 177, 195, 196, 197 central bank, 56, 74, 77, 92, 95, 97, 101, 207, 248, 268

conservative, 71, 77, 78, 80, 104, 108, 271, 314

independence, 70, 161, 263 independent, 80 instrument independence, 106, 323

political independence, 102, 106 certainty equivalence, 32, 33, 137, 157, 159, 280 cheap talk, 146 Chicago school, 58, 62 closed loop rule, 152, 155, 161 coalition

explicit, 318

implicit, 135, 136, 144, 318 Coase proposition, 57, 287 commitment, 48, 70, 80, 96, 107, 134, 137, 148, 150, 151, 156, 161, 179, 184, 203, 205, 261, 269, 276, 287, 289, 319 common good, 320, 324 communication. see Forward guidance comparability of preferences, 84, 85 and possibility of defining democratic social preferences, 85

compensation, 7 compensation principle, 15, 63 conflict, 80, 107, 127, 128, 129, 132, 133, 135, 141, 144, 147, 151, 166, 245, 261, 284, 289, 304, 314, 317, 321, 323 conflict and the theory of economic policy in a strategic setting, 127 controllability, 23, 26, 41, 127, 165, 183, 267, 268, 315, 318 and decisiveness, 136, 166, 319 and policy neutrality, 26 by a coalition, 145

dynamic, 158, 159, 160, 161, 261, 266

in a dynamic setting, 33, 152 in a static setting, 135 multi-period, 158

of the system as a whole, 140 static, 26, 157, 159, 261

core, 34, 35, 48

decisiveness, 137, 144 deflation

bias, 119 democracy, 251, 276, 293, 305, 307

and accountability, 274, 307

and capabilities, 303

and conflicts, 289

and decentralisation, 276 and education, 305, 309 and equality, 291, 292, 293 and inequalities, 304 and inequality, 304, 307 and interest groups, 307 as public reason, 304, 305 concept of, 289 direct, 274, 278 representative, 278 dictatorship.

reverse, 111

Doha Round, 250

ECB, 69, 81, 119, 175, 229 and announcements, 262, 322 and forward guidance, 183 and negative interest rates, 178 and ZLB, 283 conservative nature, 119 conservativeness, 270 target, 69, 77, 81, 229

economic policy as a discipline, 3, 4, 8, 35

core, 3, 34, 35 first pillar, 11

logic, 5, 6, 11, 50, 52, 59, 90, 127, 296

second pillar, 24 ecostructure, 296, 315, 316 education, 9, 199

and critical learning, 312

and democracy, 305, 309

and ‘distorted’ voter preferences, 289

and growth, 230

and inequality, 208, 220, 224

and social cohesion, 324

and vested interests, 324

as a capability, 88

goals of, 310 efficiency

and decentralisation, 275

and direct controls, 225

and distribution, 7, 16, 65, 225

and institutions, 40, 324

and market failures, 225

of public sector, 233, 270 electoral system, 61 emerging market economies. see LDCs

EMU, 76, 77, 78, 80, 82, 255

and central bank independence, 103

and financial markets, 255, 256 and incentives, 260

‘fiscal compact’, 177 institutions, 119, 257, 270 environmental protection, 250, 296 equilbrium

uniqueness, 28 equilibrium

babbling, 149

commitment, 137

discretionary, 130, 138 existence, 126, 135, 136, 138, 139,

140, 144, 146

features, 135, 136

features of, 138, 140

multiple, 161 multiplicity, 113, 126, 135, 146, 149

uniqueness, 27, 126, 142, 255, 317 equity, 16, 65, 208, 221, 312, 324 ethical individualism, 85, 87 Euro-area, 181, see EMU expansionary austerity, 76, 282 expectations, 32, 40

adaptive, 69

fairness, 84, 208, 250

Federal Reserve, 69, 124, 179, 183, 262

federalism, 199, 200, 275

financial market liberalization, 174 financial regulation. see Macro­prudential policy, Micro­prudential regulation

financial stability, 108, 186, 207, 244

fiscal consolidation, 75, 76, 111, 113, 115, 122, 174, 229, 234, 248

fiscal coordination, 72, 77, 78,

204

fiscal council, 81, 202

fiscal councils, 200

fiscal policy, 91, 107, 191

and financial stability policy, 108 and monetary policy, 104, 107, 108, 113, 160, 177, 185, 192, 202, 233, 314

and public debt, 176 automatic stabilizers, 119, 197 constraints to, 283 deficit bias, 194 discretionary, 197 effectiveness, 111, 112 in the EMU, 119

instruments, 192 international coordination, 204

New View, 116

Old View, 204

forward guidance, 163, 183, 232, 278, 279

and policy controllability, 279 and signals, 262

and transparency, 266 forward-looking expectations.

freedom

as a capability, 89

of speech, 88, 306

opportunity, 306, 309 process, 306, 309

Friedman rule, 70, 96, 97

full employment, 18, 39, 41, 185 functionings, 87, 88, 306

game

and decisiveness, 144

and incentives, 90

and REs, 127, 133, 164

announcement, 146, 149 common interest, 140, 142, 143, 318, 321

cooperative, 132

coordination, 147

fully shared preferences, 140 multiple equilibria, 147 N person, 143

Nash, 139, 149, 157, 160 non-cooperative, 134 n-player, 140

policy game definition, 129

Stackelberg, 133, 137, 139

two player, 148

two-player, 136 globalization

and inequality, 221

and policy effectiveness, 73

and transmission of recession, 174

and world economy's blocs, 242 data, 235

implications, 235

opportunities, 236

policies to deal with, 243 risks, 239

gold standard, 119

golden rule

for the budget, 193, 194, 195, 196 of economic policy, 158, 160, 177 Goodhart's law, 190 government failures, 49, 283

and ‘positive' economic policy, 52

and Arrow's impossibility, 59

and policy effectiveness, 59

and political economy, 60

Great Moderation, 112

Great Recession, 112

and employment, 223

and inequality, 213

and stagnation, 227

effects, 124, 203

helicopter money, 177, 179, 185, 203, 233

home

bias, 9, 76, 255 human development indicators, 88 hysteresis

effects of the Great Recession, 227 of theories, 44, 45, 127

IMF

and capital market liberalisation, 73

and capital market liberalization, 248

and fiscal consolidation, 248

and Fiscal Councils, 81

as a coordinating institution, 322

floating exchange rates, 244 immigration, 214, 221, 248, 317 implementation theory, 12, 90,126, 164

incentive problem. see also Asymmetric information incentives

and constraints, 270

and fiscal policy, 225

and inequality, 209

and institutions, 90, 109, 194, 293

and punishments, 270, 273

and signals, 253, 254

for policymakers, 80, 270

for private agents, 253 institutions and incentives, 90 to asset bubbles, 233 to private agents, 199 incomes policy, 42, 117 inequality, 300

and democracy, 292, 311

and globalisation, 248

and globalization, 239

and inflation, 100

and ‘primary’ social goods, 300

and stagnation, 229

and vested interests, 290

causes, 214

effects, 208

measurement, 211

policies, 108, 223

inflation, 113

and conservative central bank, 108

and fiscal policy, 78, 113

and independence of central bank, 102

and monetary policy, 80

and Phillips curve, 69

and recession, 174

and transparency, 265

as a macroeconomic failure, 17 bias, 77, 104, 107

in a monetary union, 78

in the EMU, 270

optimal rate, 97, 126, 231, 232

Phillips curve, 93

target, 101, 268

targeting, 70

tax, 98

institutions, 324

and accountability of policymakers, 287

and conflicts, 304

and democracy, 84, 178, 281, 306

and democratic government, 324

and economic policy, 59

and economic policy as

a discipline, 295

and effectiveness of policy action,

313

and EMU, 119, 257

and incentives, 109, 199, 257, 270, 272

and policy effectiveness, 324

and social choice, 298

and the theory of economic policy, 165, 315

and value judgments, 297

definition, 295

effects, 210

financial, 188, 191

in the EMU, 181

international, 18, 182, 191, 235, 270

optimal, 202

realization-focused, 299

theory of, 4 transcendental-focused, 299 unifying role for economic policy, 296

instrument costs, 28, 33, 143, 159 instruments, 25

existence, 26

intrinsic value, 22

number of, 135

uniqueness, 28

interest groups, 43, 60, 251, 277, 285, 286, 288, 312, 323, 324 interest groups (cont.)

and democracy, 308, 324

and education, 324

International Competition Network, 250

invisible hand, 4, 5, 8

knowledge-sharing, 278

LDCs, 104, 170, 181, 251, 292 learning, 53, 278, 312 learning by doing, 310 Leviathan, 106

Lisbon Strategy, 310 lobby. see Interest groups loss function, 21, 22, 27

and constraint, 138

and inflation, 108

linear quadratic, 148 linear-quadratic, 139

Lucas critique, 125, 126, 261

and policy effectiveness, 127 and strategic environment, 129, 132

as a vital critique to the theory of economic policy, 62

overcoming of, 131

Macroeconomic Imbalance

Procedure, 119 macroprudential instruments, 178 macroprudential policy

at the EMU level, 208

definition, 187

discretionary or rule based, 188 effectiveness, 190 implementation, 189 instruments, 186

international coordination, 191 objectives, 188

tools, 188, 189 magic square, 18, 38 market failures

and democracy, 60

and government failures, 61, 63, 313

and the theory of economic policy, 20, 33, 34

as a precondition for economic policy as a discipline, 57 macroeconomic, 5, 7, 17, 36

microeconomic, 5, 33 Marshall plan, 18, 19 measurability of preferences

cardinal, 84

ordinal, 84

micro prudential regulation, 187

and systemic risk, 188 minimal state, 10, 301, 322 mobility

of capital, 214, 221, 245, 248,

277

of goods, 214, 221

of persons, 214, 248, 255 model sharing, 280 monetary polcy

and macroprudential policy,

202

monetary policies

international coordination, 204 monetary policy

conventional, 176

Old View, 204

unconventional, 178,179, see also forward guidance, quantitative easing, helicopter money money multiplier, 179 moral hazard, 253, 257

and signals, 259 multiplier, 16, 25, 145

and Lucas critique, 126

changing value, 111

changing value of, 157

in open economies, 76, 118, 206,

247

in the EMU, 77, 119

low value, 71, 73

Nash equilibrium, 130, 137 feedback, 160

new welfare economics, 14, 47, 50 night-watchman state, 5, 8 non-profit, 285, 316

n-th country problem, 141 number of instruments

and dynamic controllability, 159

and golden rule of economic policy, 135, 158, 261

and rules, 316 number of policy instruments, 176

number of targets and instruments.

objectives. see targets

open loop Nash solution, 157 open loop rule, 155 operation twist, 179 optimal inflation rate, 97, 126 ordoliberalism, 38

Pareto optimality, 16, 87, 149, 151, 161, 205, 320

Pareto principle, 15, 63, 84

Paris Agreement on environment, 250

pillars of economic policy, 3, 17 and institutions, 287, 297 birth, 35

critiques, 55

links, 33

re-establishing, 83, 125

plan, 21, 40, 282

definition, 22

types, 39

policy

design, 26, 28

direct controls, 225, 256 distortionary, 74, 98, 271 effectiveness, 25, 59, 73, 82, 127, 139, 146, 165, 253, 269, 276, 278, 324

neutrality, 25, 29, 71, 134, 135, 138, 139, 140, 165, 267

rule, 78, 82, 90, 91, 96, 114, 130, 137, 155, 156, 163, 164, 270, 278, 320

policymakers

and incentives, 257

and signals, 254

and values, 297

constraints and incentives, 270 incentives, 253

opportunism, 253 political economics. see political economy

political economy, 59, 61, 70, 72, 79, 125, 253, 281, 283, 293, 313 radical, 284, 288

primary goods, 301 public choice, 67, 79, 276 public debt, 61, 74, 201

and growth, 73, 79, 111 and inflation, 100, 233 limits, 196

limits to, 72, 176, 192, 195, 270 restructuring, 234 public deficit, 72

limits to, 78, 177, 194, 230, 257, 270

public finance, 6, 35, 296

public good, 12, 61, 244 decentralised provision, 276 efficient provision, 112 global, 244 in Adam Smith, 9 overprovision, 61 theory of, 6

public reasoning, 309

QE. see quantitative easing quantitative easing, 179 effects, 179, 181 international spillovers, 181, 183 types, 179

rational expectations. see REs rational ignorance, 61

Real Business Cycle, 74 reduced form, 25, 153, 162 reputation, 48, 71, 134, 270

REs, 68, 71, 93, 127, 129, 130, 132, 133, 143, 157, 161, 164, 279 and asymmetric information, 278

and controllability, 162

and learning, 278

and Lucas critique, 62

and stabilisability, 163 controllability, 162, 262, 265 RMB, 249

Schengen area, 248 secular stagnation, 226, 235 causes, 227, 229, 231 policies, 177, 234 tendency to, 119

structural form, 24

structural policy, 124 surprise effect, 91, 92, 264 systemic risk, 177, see macropru­dential policy

target

fixed, 21, 24, 29, 30, 133, 153, 155 flexible, 20, 21, 27, 31, 133 value, 26, 31, 32,133, 139, 140, 149, 153, 159, 160, 245, 251, 266, 279, 317 tax haven, 247, 250 tax standard, 250 theory of economic policy as

a discipline

second pillar, 20 theory of justice, 83, 298, 302, 303, 313

time inconsistency, 69, 71, 77, 79, 80, 91, 104, 106, 134, 148, 161, 163, 165, 203, 205, 261

time lags, 113, 197 transparency, 103, 225, 250

and accountability, 275, 323

and forward guidance, 266

and monetary policy, 263

and policy decentralisation, 315

and policy effectiveness, 262

and signals, 262 trickle-down, 238 Triffin dilemma, 245 tyranny of the status quo, 15

ultra-rationality, 72 uncertainty, 32, 39

additive, 32

and announcements, 151

and learning, 278

and REs, 278

and transparency, 265 multiplicative, 32, 33 unemployment

as a macroeconomic market failure, 16

as a macroeconomic target, 18 market rate, 69, 72 natural rate, 69, 72, 79, 94

Universal Declaration of Human Rights, 310

utopia, 294, 313, 316

vested interests.

and strategic signals, 284 procedure, 64, 65, 67, 84, 298, 303, 308

with their feet, 276

Washington Consensus, 124, 244, 270

welfarism, 86 we-rationality, 10

World Bank, 8, 88, 270 world governance, 235, 252

WTO, 250, 322

ZLB, 100, 113, 176, 177, 178, 184, 185, 192, 199, 203, 204, 231, 233, 266, 283

More details on developments of economic policy can be found in Acocella (2016c).