The CBO's policy analysis. An unquestionable misuse of a questionable theory

Preston J. Miller, Arthur J Rolnick

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

The analyses of fiscal and monetary policies that the Congressional Budget Office (CBO) provides Congress tend to be biased, encouraging the use of activist stabilization policies. The CBO's virtual neglect of economic uncertainties and its emphasis on very short time horizons make active policies appear much more attractive than its own model implies. Moreover, the CBO 's adoption of the macroeconometric approach fundamentally biases its analyses. Macroeconometric models do not remain invariant to changes in policy rules and are mute on the implications of alternative policies for efficiency and income distribution. The rational expectations equilibrium approach overcomes these difficulties and implies that less activist and less inflationary policies are desirable.

Original languageEnglish (US)
Pages (from-to)171-198
Number of pages28
JournalJournal of Monetary Economics
Volume6
Issue number2
DOIs
StatePublished - Jan 1 1980
Externally publishedYes

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Policy analysis
Income distribution
Time horizon
Stabilization policy
Rational expectations equilibrium
Economic uncertainty
Fiscal and monetary policy
Neglect
Policy rules
Macroeconometric model

Cite this

The CBO's policy analysis. An unquestionable misuse of a questionable theory. / Miller, Preston J.; Rolnick, Arthur J.

In: Journal of Monetary Economics, Vol. 6, No. 2, 01.01.1980, p. 171-198.

Research output: Contribution to journalArticle

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