Targets and Instruments

Abstract

These are two concepts used in the theory of economic policy. Although the subject of economic policy as one of the forms of applied economic theory is as old as economic science itself, the more systematic treatment meant by the phrase ‘theory of economic policy’ started much more recently, in close connection with the development of econometrics. Econometrics, as the combination of theory and observation in the area of intersection of economics, statistics and mathematics, introduced the possibility of dealing with economic policy not only qualitatively, but also quantitatively. This enables economists to formulate policy recommendations in the most concrete form conceivable, as they are needed by policy-makers – government, parliament and representatives of social groups. It seems appropriate to consider as the starting document of the theory of economic policy in this sense, Ragnar Frisch’s document (1949), written for the United Nations’ short-lived Employment Commission, ‘A memorandum of price–wage–tax–subsidy policies as instruments in maintaining optimal employment’.