ABSTRACT
The paper considers the implications of the rational expectations - New Classical Macroeconomics revolution for the "rules versus discretion” debate. The following issues are covered 1) The ineffectiveness of anticipated stabilization policy, 2) Non-causal models and rational expectations, 3) optimal control in non-causal models — the inconsistency of optimal plans. I establish the robust ness of the proposition that contingent (closed-loop or feedback) rules dominate fixed (open-loop) rules. The optimal contingent rule in non-causal models - the inno vation or disturbance-contingent feedback rule - is quite different from the state-contingent feedback rule derived by dynamic stochastic programming.1
