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Robust Control: A Note on the Response of the Control to Changes in the “Free” Parameter Conditional on the Character of Nature

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  • Fidel Gonzalez

    ()

  • Arnulfo Rodriguez

    ()

Abstract

In this paper an analytical framework similar to a robust control problem was developed for the one-state, one-control variable model to examine the response of the control to changes in the “free” parameter. However, in contrast to Gonzalez and Rodriguez (2003), the sign multiplying the “free” parameter in the criterion function of the min–max problem is positive. We find that this set up corresponds to the case where nature is benevolent while the problem posed by Gonzalez and Rodriguez (2003) corresponds to a malevolent nature. We show that for the benevolent case, the solution is a minimum giving way to an ordinary control problem. In addition, the left side of the discontinuity in Gonzalez and Rodriguez (2003) corresponds to the benevolent case. Copyright Kluwer Academic Publishers 2004

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File URL: http://hdl.handle.net/10.1007/s10614-004-4124-9
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Bibliographic Info

Article provided by Society for Computational Economics in its journal Computational Economics.

Volume (Year): 24 (2004)
Issue (Month): 3 (March)
Pages: 223-238

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Handle: RePEc:kap:compec:v:24:y:2004:i:3:p:223-238

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Web page: http://www.springerlink.com/link.asp?id=100248
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Related research

Keywords: approximating model; optimal control; robustness;

References

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  1. Becker, R. & Hall, S. & Rustem, B., 1994. "Robust optimal decisions with stochastic nonlinear economic systems," Journal of Economic Dynamics and Control, Elsevier, vol. 18(1), pages 125-147, January.
  2. Arnulfo Rodriguez & Fidel Gonzalez, 2004. "Robust Control: A Note on the Response of the Control to Changes in the," Computing in Economics and Finance 2004 114, Society for Computational Economics.
  3. P. Ruben Mercado & David Kendrick, 1999. "Caution in Macroeconomic Policy: Uncertainty and the Relative Intensity of Policy," Computing in Economics and Finance 1999 1343, Society for Computational Economics.
  4. Hans M. Amman & David A. Kendrick, . "Computational Economics," Online economics textbooks, SUNY-Oswego, Department of Economics, number comp1, January.
  5. J. Tetlow, Robert & von zur Muehlen, Peter, 2001. "Robust monetary policy with misspecified models: Does model uncertainty always call for attenuated policy?," Journal of Economic Dynamics and Control, Elsevier, vol. 25(6-7), pages 911-949, June.
  6. Lars Hansen & Thomas Sargent & Thomas Tallarini, . "Robust Permanent Income and Pricing," GSIA Working Papers 1997-51, Carnegie Mellon University, Tepper School of Business.
  7. Hans M. Amman & David A. Kendrick, 1996. "The DUALI/DUALPC Software for Optimal Control Models: Introduction," CARE Working Papers 9602, The University of Texas at Austin, Center for Applied Research in Economics.
  8. Gonzalez, Fidel & Rodriguez, Arnulfo, 2005. "Robust control: A note on the response of the control to changes in the "free" parameter," Economics Letters, Elsevier, vol. 89(3), pages 294-299, December.
  9. Robert J. Tetlow & Peter von zur Muehlen, 2002. "Avoiding Nash inflation: Bayesian and robust responses to model uncertainty," Finance and Economics Discussion Series 2002-9, Board of Governors of the Federal Reserve System (U.S.).
  10. Orphanides, Athanasios & Wieland, Volker, 1999. "Inflation zone targeting," Working Paper Series 0008, European Central Bank.
  11. Lars Peter Hansen & Thomas J. Sargent, 2001. "Acknowledging Misspecification in Macroeconomic Theory," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(3), pages 519-535, July.
  12. Hansen, Lars Peter & Sargent, Thomas J. & Wang, Neng E., 2002. "Robust Permanent Income And Pricing With Filtering," Macroeconomic Dynamics, Cambridge University Press, vol. 6(01), pages 40-84, February.
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Citations

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Cited by:
  1. Felipe Morandé & Mauricio Tejada, 2008. "Sources of Uncertainty for Conducting Monetary Policy in Chile," Working Papers Central Bank of Chile 492, Central Bank of Chile.
  2. Gonzalez, Fidel & Rodriguez, Arnulfo, 2005. "Robust control: A note on the response of the control to changes in the "free" parameter," Economics Letters, Elsevier, vol. 89(3), pages 294-299, December.
  3. Fidel Gonzalez, 2008. "Optimal Policy Response with Control Parameter and Intercept Covariance," Computational Economics, Society for Computational Economics, vol. 31(1), pages 1-20, February.
  4. P. Mercado & David Kendrick, 2006. "Parameter Uncertainty and Policy Intensity: Some Extensions and Suggestions for Further Work," Computational Economics, Society for Computational Economics, vol. 27(4), pages 483-496, June.
  5. Fidel Gonzalez & Arnulfo Rodriguez, 2013. "Monetary Policy Under Time-Varying Uncertainty Aversion," Computational Economics, Society for Computational Economics, vol. 41(1), pages 125-150, January.
  6. Felipe Morandé & Mauricio Tejada, 2009. "Sources of Uncertainty in Conducting Monetary Policy in Chile," Central Banking, Analysis, and Economic Policies Book Series, in: Klaus Schmidt-Hebbel & Carl E. Walsh & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series (ed.), Monetary Policy under Uncertainty and Learning, edition 1, volume 13, chapter 12, pages 451-509 Central Bank of Chile.

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