Chapter

Dynamical Control of Economic Waves by Fiscal Policy

Richard M. Goodwin

in Chaotic Economic Dynamics

Published in print November 1990 | ISBN: 9780198283355
Published online November 2003 | e-ISBN: 9780191596315 | DOI: http://dx.doi.org/10.1093/0198283350.003.0008
 Dynamical Control of Economic Waves by Fiscal Policy

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The control variable in the previous chapter is interpreted here as public net income‐generating expenditure. In the absence of compensatory policy, the model of the previous chapter results in a highly irregular time series and maximum unemployment of 12%. In contrast, almost perfect smoothing is possible by large and rapid intervention, based upon derivative control, at the early stages of the fluctuation. The addition of proportional control can ensure that equilibrium unemployment falls gradually to an appropriately low level. Problems of implementation are discussed.

Keywords: compensatory policy; derivative control; dynamic control; fiscal policy; fluctuations; monetary policy; proportional control; public expenditure; Rössler band; unemployment

Chapter.  1530 words.  Illustrated.

Subjects: Macroeconomics and Monetary Economics

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