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An Algorithm for the Solution of Stochastic Optimal Control Problems for Large Nonlinear Econometric Models

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  • Hall, S G
  • Stephenson, M J

Abstract

This paper considers the problem of solving an optimal control problem for large dynamic economic models which are both nonlinear and stochastic. It proposes a technique which combines conventional deterministic optimal control algorithms with the procedure of stochastic simulation, which calculates a numerical approximation to the distribution of the models endogenous variables. The new technique is computationally feasible for even large nonlinear models and, as an illustration of this, the Bank of England's large quarterly forecasting model is used in an example. Copyright 1990 by John Wiley & Sons, Ltd.

Suggested Citation

  • Hall, S G & Stephenson, M J, 1990. "An Algorithm for the Solution of Stochastic Optimal Control Problems for Large Nonlinear Econometric Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 5(4), pages 393-399, Oct.-Dec..
    • Handle: RePEc:jae:japmet:v:5:y:1990:i:4:p:393-99
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    Cited by:

    1. Collard, Fabrice & Juillard, Michel, 2001. "Accuracy of stochastic perturbation methods: The case of asset pricing models," Journal of Economic Dynamics and Control, Elsevier, vol. 25(6-7), pages 979-999, June.

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