Is There a Case for the MTFS?

This paper offers a critique of the macroeconomic policy stance of the U.K. Conservative administration from a policy optimization perspective. Attention is focused on three particular issues which, it is argued, require clarification in the medium term financial strategy. The first concerns the role of nominal GDP; the second is concerned with whether output is an objective of policy alongside inflation; the third concerns the role of fiscal policy. The costs and benefits of the approach taken in the current medium term financial strategy are illustrated empirically using the National Institute macroeconomic model. Copyright 1993 by Blackwell Publishers Ltd and The Victoria University of Manchester