Discretionary policy

Discretionary policy

Discretionary policy is a term used to describe macroeconomic policy based on the ad hoc judgment of policymakers as opposed to policy set by predetermined rules. For instance, a central banker could make decisions on interest rates on a case by case basis instead of allowing a set rule, such as the Taylor rule, determine interest rates.

Discretionary policies are similar to "feedback-rule policies" used by the Federal Reserve to achieve price level stability. "Discretionary policies" refer to actions taken in response to changes in the economy, but they do not follow a strict set of rules, rather, they use subjective judgment to treat each situation in unique manner. In practice, most policy changes are discretionary in nature. Policy makers use auto stabilizers to adjust the aggregate demand.

"Discretionary policy" can refer to decision making in both monetary policy and fiscal policy.

According to Milton Friedman, the dynamics of change associated with the passage of time presents a timing problem for public policy. The reason this poses a problem is because a long and variable time lag exists between: 1. The need of action and the recognition of that need 2. The recognition of a problem and the design and implementation of a policy response; and 3. The implementation of the policy and the effect of the policy (Friedman 1953: 145).

It is because of these lags that Friedman argues that discretionary public policy will often be destabilizing. For this reason, he argued the case for general rules rather than discretionary policy.



Wikimedia Foundation. 2010.

Игры ⚽ Нужна курсовая?

Look at other dictionaries:

  • discretionary — dis·cre·tion·ary /dis kre shə ˌner ē/ adj: left to discretion: exercised at one s own discretion; specif: relating to the policy making function of a public official see also federal tort claims act in the important laws section compare… …   Law dictionary

  • Discretionary spending — Part of a series on Government Public finance File:Governmentbhj,i,gu Vedder Highsmith detail 1.jpeg …   Wikipedia

  • Discretionary access control — In computer security, discretionary access control (DAC) is a kind of access control defined by the Trusted Computer System Evaluation Criteria[1] as a means of restricting access to objects based on the identity of subjects and/or groups to… …   Wikipedia

  • discretionary fiscal policy — noun A fiscal policy achieved through government intervention, as opposed to automatic stabilizers …   Wiktionary

  • Economic policy — refers to the actions that governments take in the economic field. It covers the systems for setting interest rates and government deficit as well as the labour market, national ownership, and many other areas of government. Such policies are… …   Wikipedia

  • government economic policy — ▪ finance Introduction       measures by which a government attempts to influence the economy. The national budget generally reflects the economic policy of a government, and it is partly through the budget that the government exercises its three …   Universalium

  • Energy Policy Act of 2005 — Enacted by the 109th United States Congress Citations Public Law …   Wikipedia

  • National fiscal policy response to the late 2000s recession — Many nations of the world have enacted fiscal stimulus plans in response to the global, ongoing recession. These nations have used different combinations of government spending and tax cuts to boost their sagging economies. Most of these plans… …   Wikipedia

  • Monetary policy — Part of a series on Government Public finance File:Governmentbhj,i,gu Vedder Highsmith detail 1.jpeg …   Wikipedia

  • Fiscal policy — Part of a series on Government Public finance …   Wikipedia

Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”