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What is Constrained DiscretionA principle which applies to the situation in which policymakers have some freedom (discretion) to vary policy instruments, such as taxes or interest rates, but within well-defined limits (constraints). A well-designed policy framework gives policymakers sufficient freedom to respond flexibly to shocks and sufficient constraints to ensure that they do not exercise their discretion in a way that could undermine the long-term stability of the economy.
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Term created / updated 2007-03-20 22:41:59
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