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A trade-off criterion for evaluating effectiveness and reliability of alternative policy actions

By Carlo Bianchi, Jean-Louis Brillet and Giorgio Calzolari


The evaluation of policy actions by means of macroeconomic models often begins with the analysis of multipliers. A rough analysis recommends to use those instruments that exhibit large multipliers. Government budget usually imposes some constraints on the policy action. Insted of the raw multiplier, a trade-off criterion could measure the effect of a variation of the instrument associated with a given cost in terms of government deficit. The trade-off criterion can be computed from the macroeconomic model, and this paper shows how to associate a standard error to the point estimate, thus providing a measurement of reliability of the policy instrument.

Topics: C53 - Forecasting and Prediction Methods; Simulation Methods, C63 - Computational Techniques; Simulation Modeling
Year: 1988
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