The implications of myopic policy-making for macroeconomic performance

This paper evaluates the implications of myopic behaviour in policy-making on intertemporal economic performance by applying an optimal control approach to Canada. Myopia is characterized in two ways; first by the rate at which the future is discounted and second by the policy maker’s planning horizon. The optimal decision rules, which correspond to various degrees of time preference and different time horizons, generate an intertemporal tradeoff curve of economic performance. This tradeoff tends to disappear with an excessive preoccupation on the present vis à vis the future. That is, an extremely myopic policy results in poor economic performance in the future without any improvement in the present.