Stabilization Goals and the Appropriateness of Fiscal Policy During the Eisenhower and Kennedy-Johnson Administrations

Abstract

An active stabilization policy requires that policy variables respond to preceding deviations of the target variables from their goal. If there are several competing macroeconomic goals, political parties may differ on the optimal tradeoff to be sought. However, even if allowance is made for divergent political preferences between Republican and Democratic administrations, no pattern of "reverse causation" or negative feedback could be found which would indicate that the formulation of fiscal policy has been dominated by a stabilization rationale. Minimizing quadratic penalty functions subject to the Phillips curve constraint has little value in explaining actual policy shifts.