ON OPTIMAL AND AD HOC STABILIZATION POLICY RULES

This paper compares the structure of ad hoc stabilization policy rules of the type suggested by Phillips with the structure of optimal policy rules derived for the same models using the Maximum principle. More particularly the paper suggests that the performance of ad hoc rules could be improved by reformulating them to accommodate both the lag structure and the forecast structure of the underlying macroeconomic model. The paper also illustrates the superiority of policy rules which utilize time-varying policy coefficients.