Using Compromise Programming for Macroeconomic Policy Making in a General Equilibrium Framework: Theory and Application to the Spanish Economy

Abstract

This paper has a twofold purpose. First, to show how Compromise Programming, linked with some results connecting this approach with classic utility optimisation, can become a useful analytical tool for designing and assessing macroeconomic policies. Second, to apply the proposed methodology to a macroeconomic policy making problem in Spain. In this way, starting from a Computable General Equilibrium Model, a frontier of growth-inflation combinations for the Spanish economy is determined. After that, several Pareto-efficient policies that represent compromises between economic growth and inflation rate are established and interpreted in economic terms.