chapter  9
18 Pages

The Turn to the Long-Run (2): Policies for the Long-Run

Throughout the last chapter, models' long-run properties were looked at in the context of an exercise in comparison. The question there was always one of how the economy's long-run position would change were the values of some economic variables to be altered; usually, these alterations involved changes in either fiscal or exchangerate policy. Beneath these exercises in comparative statics lies the base, or 'underlying', position that is attained in the long-run. The London Business School addressed this matter directly as far as the price level and the exchange-rate were concerned, but the only models that explicitly examined the underlying positions of the real variables, and their path through time, were those of the Cambridge Economic Policy Group and Liverpool. Although the Policy Group was the first to look at them, Liverpool was the first to give them a name-the 'natural rates'.1