This paper proposes and applies to the London Business School (LBS) model a general methodology for the design of macroeconomic policy using large rational expectations models. Design proceeds through the following four stages: first, a small, linear representation of the original large,...

This paper extends the work of Barro and Gordon (1983) to general linear models with rational expectations. We examine the question whether the optimal policy rule, i.e. the one that a government which could pre-commit itself would use, can be sustained as a consistent rule in the sense defined...

In several recent papers macroeconomic policy has been modelled in the context of a game of incomplete information. A central result of the work by Backus and Driffill and by Barro is that the uncertainty may provide an incentive for the government to maintain a socially efficient policy of zero...

The paper investigates the sustainability of cooperative rules for the conduct of macroeconomic policy in a two-country world. The problem is set out as a supergame in which the threat strategy is to switch to a Nash non-cooperative equilibrium. A number of possible non-cooperative equilibria...

This paper provides a general review of recent developments in the application of control theory to macroeconomic policy design. It starts by highlighting the crucial difference between the engineering and economic control problem, in that the latter, unlike the former, is concerned with the...