Interdependence and Consistency of Economic Policies

PROBLEoMf eSconomic policy for static models are characterized by the fact that in the usual system of equations describing the structure of such models the role of unknown and known variables has been inverted, wholly or partially. In the political problem unknom-ns are the numerical values of a number of political parameters, whereas a number of "economic variables" in the old sense are now given targets. In order that a certain set of target values be attainable by a certain type of economic policy (i.e., by the choice of a certain number of instruments) the number of equations must be equal to the number of unknown political parameters plus, as the case may be, those unknown economic variables that are not chosen as targets. Various logical situations may present themselves, the simplest being the situation just indicated. If the number of equations is too small, the economic policy aimed at is inconsistent or contradictory; if it is too large, the policy is indeterminate and the target has to be specified more exactly.