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 robustness of the proposition that contingent (closed-loop or feedback) rules dominate fixed (open-loop) rules. The optimal contingent rule in non-causal models – the innovation or disturbance-contingent feedback rule – is quite different from the state-contingent feedback rule derived by dynamic stochastic programming. 1
