Dissecting the two-handed approach: Who’s the expert hand for what?

In this paper we address the question of the macroeconomic assignment problem of wage and demand policy that is implicit in the “two-handed approach”. It is central to an understanding of this problem to distinguish the two levels of policy instruments and policy makers. Unfortunately, but also illuminatingly, these two perspectives may well lead to opposing policy recommendations. Whereas demand policy is likely to be the instrument better suited to target output - and hence wage policy to target inflation - it is equally likely that demand and wage policy makers should not be entrusted with these targets.