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Optimal Control, Expectations and Uncertainty

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  • Holly,Sean
  • Hughes Hallet,Andrew

Abstract

The rational expectations revolution and other developments in economics (notably game theory) have fundamentally altered the application of optimal control theory to economic forecasting and planning. In particular, they have shown that economic systems cannot be modelled simplistically on physical systems. However, as the authors of this volume show, these developments have greatly enhanced our understanding of how an economy functions, and now make it possible for optimal control theory to be applied much more effectively to economic modelling and planning. This book is divided into two parts. The first presents the orthodox framework but extends it to allow for multiplicative uncertainty, risk and non-linearities in the econometric model. The second part looks explicitly at the question of expectations. It provides methods by which forward-looking expectations can be treated jointly with the determination of economic policy. It also examines game-theoretic considerations - where, for instance, policy makers may have incentive to renege on their commitments.

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Bibliographic Info

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This book is provided by Cambridge University Press in its series Cambridge Books with number 9780521126335 and published in 2010.

Order: http://www.cambridge.org/uk/catalogue/catalogue.asp?isbn=9780521126335
Handle: RePEc:cup:cbooks:9780521126335

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Cited by:
  1. Hughes Hallett, Andrew & Di Bartolomeo, Giovanni & Acocella, Nicola, 2012. "A general theory of controllability and expectations anchoring for small-open economies," Journal of International Money and Finance, Elsevier, vol. 31(2), pages 397-411.
  2. Luisa Corrado & Sean Holly, 2003. "Nonlinear Phillips Curves, Mixing Feedback Rules and the Distribution of Inflation and Output," CEIS Research Paper 37, Tor Vergata University, CEIS.
  3. Di Bartolomeo Giovanni & Hughes Hallett Andrew & Acocella Nicola, 2008. "Policy games, policy neutrality and Tinbergen controllability under rational expectations," wp.comunite 0034, Department of Communication, University of Teramo.
  4. Pantelous, Athanasios A., 2008. "Dynamic risk management of the lending rate policy of an interacted portfolio of loans via an investment strategy into a discrete stochastic framework," Economic Modelling, Elsevier, vol. 25(4), pages 658-675, July.
  5. Di Bartolomeo, Giovanni & Giuli, Francesco, 2011. "Fiscal and monetary interaction under monetary policy uncertainty," European Journal of Political Economy, Elsevier, vol. 27(2), pages 369-375, June.
  6. Sengupta, Jati K., 1997. "Recent Models in Dynamic Economics: Problems of Estimating Terminal Conditions," University of California at Santa Barbara, Economics Working Paper Series qt05g0d8gm, Department of Economics, UC Santa Barbara.
  7. Arnab Bhattacharjee & Sean Holly, 2005. "Inflation Targeting, Committee Decision Making and Uncertainty: The Case of the Bank of England’s MPC," CDMA Working Paper Series 200503, Centre for Dynamic Macroeconomic Analysis.
  8. Acocella, Nicola & Di Bartolomeo, Giovanni & Hughes Hallett, Andrew, 2008. "When Can Central Banks Anchor Expectations? Policy communication and controllability," CEPR Discussion Papers 7078, C.E.P.R. Discussion Papers.
  9. Calkins, Peter H., 1995. "Transition to a New World Economic Order Part II: Strategies," Review of Marketing and Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 63(03), December.
  10. Tetlow, Robert J. & von zur Muehlen, Peter, 2001. "Simplicity versus optimality: The choice of monetary policy rules when agents must learn," Journal of Economic Dynamics and Control, Elsevier, vol. 25(1-2), pages 245-279, January.
  11. 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.
  12. Nicola Acocella & Giovanni Di Bartolomeo, 2005. "Non-neutrality of economic policy: An application of the Tinbergen-Theil's approach to a strategic context," Working Papers 82, University of Rome La Sapienza, Department of Public Economics.
  13. Armstrong, John & Black, Richard & Laxton, Douglas & Rose, David, 1998. "A robust method for simulating forward-looking models," Journal of Economic Dynamics and Control, Elsevier, vol. 22(4), pages 489-501, April.
  14. Calkins, Peter H., 1995. "Transition to a New World Economic Order Part I: The Framework," Review of Marketing and Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 63(02), August.
  15. 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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