Should policy Be Active or Passive? ● Passive o Lags in implementation effects of policies Inside lag outside lag Automatic stabilizers (income tax; unemployment insurance, Martin Weitzman: profit sharing) 6
6 Should Policy Be Active or Passive? ⚫ Passive ① Lags in implementation & effects of policies --- inside lag --- outside lag Automatic stabilizers (income tax; unemployment insurance; Martin Weitzman: profit sharing)
Should policy Be Active or Passive? Passive Economic forecasting is difficult index of leading indicators economic models 7
7 Should Policy Be Active or Passive? ⚫ Passive Economic forecasting is difficult: --- index of leading indicators --- economic models