Comments on Papers by Stefania Albanesi, V. V. Chari, and Lawrence J. Christiano and by Jordi Galí

Summary

The theme of these comments is that we need to remain vigilant against the possibility that “standard” modeling conventions in macroeconomics, originally introduced as experimental or tentative, start to be used unquestioningly, despite serious drawbacks. It is, in a sense, unfair to focus such comments on the papers presented in this session, because the conventions to be criticized are not at all special to these papers, but there must be some point at which we step back and consider where the conventions in our literature are headed, and a quinquennial World Congress seems as appropriate an occasion as any for doing this.

I consider the papers by Galí and by Albanesi, Chari, and Christiano (hence-forth ACC) that appear in this volume; and also the empirical paper (Galí and Gertler, 1999) that forms the foundation for much of the paper in this volume that Jordi Galí presented.

OPTIMAL MONETARY AND FISCAL POLICY

Both papers discuss optimal monetary policy in the context of general equilibrium models. General equilibrium models, with their own internally generated, explicit measures of welfare, allow us to avoid postulating an ad hoc objective function for the policy authority, instead evaluating policy directly in terms of its welfare implications for private agents.