ABSTRACT

This chapter shows what the effects of our policy rules (section 6.7) would have been if they had been in operation during the period from 1975 I to 1987 II. During this period the economy was exposed to a series of external shocks, and the policy rules would have had to play an active role in setting the tax rate, the interest rate and the real exchange rate target so as to damp the effect of these shocks on the economy, and keep the values of Money GDP and national wealth close to their target paths. The simulations then continue to show how the economy would have performed during the period 1987 III to 1989 IV in the absence of further shocks.