The limits of Policymaking - An analysis of the consequences of boundedly rational government using the Swedish Micro-to-Macro model (MOSES)

Complexity of the economic system makes it impossible for policy makers to controI fully the outcome of their policies.This is particularly so when it comes to policies that infIuence prices and the dynamic coordination mechanisms of an economy, and especially those that regulate the long and short ron (intergenerational) tradeoff of economic welfare.Hence, a boundedly rational Government has to attend not only to the intended outcomes in their policy model but also to the unintended side effects in the wider model of the real economy.In this paper this reality is defined to be the Swedish micro-to-macro (M-M) model, which is sufficiently complex to make all standard macro forecasting and policy models biased predictors of M-M model