Sample Essay

Blackburn (1999) was interested in how short – term stabilisation policy might affect long – term economy. He found that short – term shocks have permanent results on the economic growth. Therefore, he concludes that the relationship between volatility and economic growth depends on the properties of the learning function. Relationship’s sign shows if stabilisation policy has a destructive or beneficial effect on the long-term economic growth.

Moreover he states that policy also affects average rate of growth of output and there are many ways for stabilisation policy to increase or decrease long – run growth. The limitation of his paper was that he did not review what particular actions might cause changes in economic growth in this study. However he discusses this limitation with Pelloni in 2002. They got that stabilisation policy, which is constructed to decrease stochastic fluctuations, might rise/reduce long-run growth. This increase/reduction depends on the source of the fluctuations. This result is important by the fact that the best policy which maximises welfare “is not the policy which minimises volatility but the policy which maximises growth” (Blackburn, Pelloni 2002).

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