DP411 Is There a Case for the MTFS?

Author(s): Peter Westaway, Simon Wren-Lewis
Publication Date: April 1990
Keyword(s): Fiscal Policy, Monetary Policy, Policy Optimization
JEL(s): 130, 431
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=411

This paper offers a critique of the UK government's Medium Term Financial Strategy from a policy optimization perspective. It argues that recent versions of the MTFS can be interpreted as representing the outcome of a policy optimization exercise, but that certain key aspects remain unclear. These include the role of output in the objective function, the interpretation of nominal GDP targets and the role of fiscal policy as an instrument. The importance of these issues is illustrated by carrying out various optimal control exercises on the National Institute's domestic econometric model.