The Sensitivity of Optimal Policies to Parametric and Stochastic Changes
- 7 Downloads
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.
KeywordsPeriod Solution Equation Error Econometric Model Welfare Index Welfare Change
Unable to display preview. Download preview PDF.
- 1.(1) Chow, G. C. (1975) Analysis and control of dynamic linear economic models (Wiley, New York).Google Scholar
- 2.(2) Holbrook, R. S. (1974) A practical method for controlling a large nonlinear stochastic system’ Annals of Econ. and Soc. Meas., 3, pp. 155–77.Google Scholar
- 4.(4) Preston, R. S., ‘Control theory simulations using Klein, L. R., the Wharton long term annual and O’Brien, Y. C. and industry forecasting model’, Wharton, Brown B. W. (1976). ton Econometric Forecasting Associates Inc. (mimeo).Google Scholar
- 5.(5) Rustem B., Vellupillai, ‘A method of respecifying the K. and Westcott, weighting matrix of a quadratic welfare J.H. (1978) function’ Automatica, Sept.Google Scholar
- 6.(6) Theil, H. (1964) Optimal decision rules for government and industry (North-Holland, Amsterdam).Google Scholar
- 7.(7) van den Brogaard, P. ‘Macrodynamic policy making: an and Theil, H. (1959) application of strategy and certainty equivalence concepts to the economics of the United States 1933–6’, Metroeconomica.Google Scholar
- 8.(8) Wall, K. D. and ‘Policy optimisation studies with a Westcott, J. H. simple control model of the U. K. economy’, IFAC/75 Congress, Boston, Mass., Aug. 1975.Google Scholar