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Finn E. Kydland: 2 ideas worth knowing

2 ideas from Finn E. Kydland, each explained in a minute and credited to the original work. Free on Savvy.

• A government's best long-term plan can look like a mistake every single day it's followed

  Finn Kydland and Edward Prescott showed that a policy which is optimal when announced can stop being optimal once people have already reacted to it — tempting policymakers to break…

  — Finn E. Kydland, Edward C. Prescott, Rules Rather than Discretion: The Inconsistency of Optimal Plans

• A government that promises low inflation has every reason to break that promise later

  Kydland and Prescott showed that a policy which looks optimal in advance can stop being optimal once people have already adjusted their behaviour based on believing it — tempting p…

  — Finn Kydland, Edward Prescott, Rules Rather Than Discretion: The Inconsistency of Optimal Plans

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