Why the EMS? Dynamic Games and the Equilibrium Policy Regime

Given a complete specification of a policy maker’s preferences (her objective function) and of the economic structure which constrains the choice of policy variables, it is conceptually straightforward to compute the optimal policy. Within such a framework, the notion of a policy regime has little meaning. The dependence of the optimal policy on the specification of the objective function and on the economic structure is essentially continuous: small changes in preferences or constraints will typically lead to small changes in the rules which govern optimal policies.