Chapter 35 Economic policy formation: Theory and implementation (applied econometrics in the public sector)

This chapter discusses the theory and implementation of economic policy to put policy measures in a more general perspective, only some of which are purely demand management and aggregative. The evolution of econometric models for policy application to many supply-side characteristics is discussed in the chapter. For purposes of exposition, two types of policy are examined(1) overall macro policies and (2) specific structural policies. Macro policies refer to traditional monetary and fiscal policies, principally of central governments but the model applications to local government policies are also relevant. As the world economy becomes interdependent, more economies are recognizing their openness; therefore, trade/payments policies are also part of the complement known as macro policy. Structural policies are aimed at the specific segments of the economy, specific groups of people, specific production sectors, and distributions of aggregative magnitudes or markets. Economists focus on macro policies because they have overall impacts and leave the distributive market process unaffected.