The Sensitivity of Optimal Policies to Parametric and Stochastic Changes

  • A. Hughes-Hallett


Traditionally econometric models are used to find acceptable policy strategies by extensive simulation exercises. To resolve conflicts between rival target variables or between rival values of a target over time, or to place costs on large variations in instrument variables, some index of overall performance must be employed —but there is no guarantee we approach the best policies. The success of optimal control methods in other contexts therefore makes it very tempting to apply them for policies to optimise that index. Since recent results indicate that, computing constraints apart, the mathematical and dimension difficulties of the general problem are now largely solved, it is now important to gain experience of the specification of the economic aspects of the problem. Virtually no experimentation of this kind has been undertaken.


Period Solution Equation Error Econometric Model Welfare Index Welfare Change 
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© A. Hughes-Hallett 1979

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  • A. Hughes-Hallett

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