First published in 1983, this is the second of two volumes on the causes and cure of stagflation – that combination of mass unemployment and rapid inflation that is currently afflicting the mixed economies of the industrially developed world. The authors deplore the unemployment due to the failure of governments to adopt Keynesian measures for the expansion of economic activity, but recognise that in present conditions such measures would lead to an unacceptable and explosive inflation of money wages and prices. They therefore advocate a dual strategy of financial policies for a steady expansion of total money incomes combined with individual wage rates set at levels to promote employment.
The book is of importance for all those concerned with macroeconomic theory and policy. The description of the meaning of a New Keynesian policy and of the arguments for it have been written in a way which should be intelligible to policy-makers and students, and not only to economists with technical training. Professional macroeconomists will be interested not only in these sections but also in the fully specified macroeconomic model used to analyse New Keynesian policies in economic terms and to carry out a counterfactual re-running of history. In addition, the unusually detailed exposition of the application of control techniques to a difficult multivariable control problem also makes the book of interest to control engineers who wish to acquaint themselves with recent generalisations of classical frequency response methods.
Part 1: The Policy in Theory and Practice 1. The Case for New Keynesian Demand Management 2. Three Financial Targets: Money Income, Balance of Payments and Investment Ratio 3. Three Financial Weapons: Fiscal, Monetary and Foreign-Exchange Measures 4. The Marriage of Weapons and Targets 5. Discretionary Interventions Part 2: Rerunning History 6. The Formulation and Historical Application of the Control Rules 7. Results of the Rerun Part Three Some Administrative Problems of Fiscal Control 8. The Use of Indirect Taxes as a Regulator 9. The Use of Income Tax as a Regulator 10. The Use of a Wage Tax as a Regulator Part 4: The Derivation of Control Rules for Economic Policy 11. Feedback Systems and Economic Policies 12. Frequency-Response Methods for Policy Design 13. The Design and Performance of New Keynesian Policies