The "Magic Square" of Economic Policy

Oliver Picek
Written By SCEPA

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The macroeconomic performance of eleven euro zone area countries is evaluated over time and across countries.

The "Magic Square of Economic Policy" highlights four main goals of economic policy: growth, full employment, price stability, and balanced trade. A Macroeconomic Performance Index can be used to assign relative weights to the dierent goals within the Magic Square, giving a single index number per year per country. The legitimacy of the simplest weighting scheme that assigns equal weight to all four goals is discussed.

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