Using compromise programming for macroeconomic policy making in a general equilibrium framework: theory and application to the Spanish economy

This paper aims to show how Compromise Programming, linked with some results connecting this approach with classic utility optimization, can become a useful analytical tool for designing and assessing macroeconomic policies. The functioning of the method is illustrated through an application to the Spanish economy. In this way, starting from a Computable General Equilibrium Model, a frontier of growth–inflation combinations is determined. After that, several Pareto–efficient policies that represent compromises between economic growth and inflation rate are established and interpreted in economic terms.