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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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Author Info
Fidel Gonzalez ()
Arnulfo Rodriguez ()

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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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Publisher Info
Article provided by Springer 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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Related research
Keywords: approximating model; optimal control; robustness;

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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.:
  1. 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.). [Downloadable!]
    Other versions:
  2. Hansen, Lars Peter & Sargent, Thomas J & Tallarini, Thomas D, Jr, 1999. "Robust Permanent Income and Pricing," Review of Economic Studies, Blackwell Publishing, vol. 66(4), pages 873-907, October. [Downloadable!] (restricted)
    Other versions:
  3. Mercado, P. Ruben & Kendrick, David A., 2000. "Caution in macroeconomic policy: uncertainty and the relative intensity of policy," Economics Letters, Elsevier, vol. 68(1), pages 37-41, July. [Downloadable!] (restricted)
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  4. 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. [Downloadable!] (restricted)
  5. 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.
  6. Hans M. Amman & David A. Kendrick, 1996. "The DUALI/DUALPC Software for Optimal Control Models: Introduction," Economics, University of Texas at Austin 9602, Center for Applied Research in Economics. [Downloadable!]
  7. 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. [Downloadable!] (restricted)
  8. 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. [Downloadable!]
  9. Hans M. Amman & David A. Kendrick, . "Computational Economics," Online economics textbooks, SUNY-Oswego, Department of Economics, number comp1, March. [Downloadable!]
  10. 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. [Downloadable!] (restricted)
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Cited by:
(explanations, 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.)

  1. P. Mercado & David Kendrick, 2006. "Parameter Uncertainty and Policy Intensity: Some Extensions and Suggestions for Further Work," Computational Economics, Springer, vol. 27(4), pages 483-496, June. [Downloadable!] (restricted)
  2. Fidel Gonzalez, 2008. "Optimal Policy Response with Control Parameter and Intercept Covariance," Computational Economics, Springer, vol. 31(1), pages 1-20, February. [Downloadable!] (restricted)
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