Advanced Search
MyIDEAS: Login to save this article or follow this journal

Stochastic optimal control, international finance and debt

Contents:

Author Info

  • Fleming, Wendell H.
  • Stein, Jerome L.

Abstract

We use stochastic optimal control-dynamic programming (DP) to derive the optimal foreign debt/net worth, consumption/net worth, current account/net worth, and endogenous growth rate in an open economy. Unlike the literature that uses an Intertemporal Budget Constraint (IBC) or the Maximum Principle, the DP approach does not require perfect foresight or certainty equivalence. Errors of measurement and the effects of unanticipated shocks are corrected in an optimal manner. We contrast the DP and IBC approaches, show how the results of the dynamic programming approach can be interpreted in a traditional simple mean-variance/Tobin-Markowitz context, and explain why our results are generalizations of the Merton model.

(This abstract was borrowed from another version of this item.)

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.sciencedirect.com/science/article/B6VCY-49CRFJT-4/2/edcce35d1685d294a9346f9c5ace53b2
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 28 (2004)
Issue (Month): 5 (May)
Pages: 979-996

as in new window
Handle: RePEc:eee:jbfina:v:28:y:2004:i:5:p:979-996

Contact details of provider:
Web page: http://www.elsevier.com/locate/jbf

Related research

Keywords:

Other versions of this item:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Gandolfo, Giancarlo & Goldberg, Michael D., 2005. "International Finance And Open-Economy Macroeconomics," Macroeconomic Dynamics, Cambridge University Press, vol. 9(02), pages 263-266, April.
  2. Jerome L. Stein & Giovanna Paladino, 2001. "Country Default Risk: An Empirical Assessment," Working Papers 2001-08, Brown University, Department of Economics.
  3. Stein, Jerome L. & Paladino, Giovanna, 1997. "Recent developments in international finance: A guide to research," Journal of Banking & Finance, Elsevier, vol. 21(11-12), pages 1685-1720, December.
  4. Infante, Ettore F & Stein, Jerome L, 1973. "Optimal Growth with Robust Feedback Control," Review of Economic Studies, Wiley Blackwell, vol. 40(1), pages 47-60, January.
  5. Milton Friedman & Anna J. Schwartz, 1963. "A Monetary History of the United States, 1867-1960," NBER Books, National Bureau of Economic Research, Inc, number frie63-1, July.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Stein, Jerome L., 2010. "A tale of two debt crises: a stochastic optimal control analysis," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 4(3), pages 1-24.
  2. Jerome L. Stein, 2004. "Optimal Debt and Equilibrium Exchange Rates in a Stochastic Environment: an Overview," CESifo Working Paper Series 1363, CESifo Group Munich.
  3. Stein, Jerome L., 2011. "The crisis, Fed, Quants and stochastic optimal control," Economic Modelling, Elsevier, vol. 28(1-2), pages 272-280, January.
  4. Abutaleb, Ahmed S. & Hamad, Marwa G., 2012. "Optimal foreign debt for Egypt: A stochastic control approach," Economic Modelling, Elsevier, vol. 29(3), pages 544-556.
  5. Kwamie Dunbar, 2009. "Stochastic Business Cycle Volatilities, Capital Accumulation and Economic Growth: Lessons from the Global Credit Market Crisis," Working papers 2009-36, University of Connecticut, Department of Economics.
  6. Jerome L. Stein, 2006. "United States Current Account Deficits: A Stochastic Optimal Control Analysis," CESifo Working Paper Series 1805, CESifo Group Munich.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eee:jbfina:v:28:y:2004:i:5:p:979-996. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.