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Can stabilization policies be efficient?

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  • Aurelien Saidi

Abstract

This paper makes use of optimal control relaxed problems to prove the absence of optimal trajectory in continuous time models with social increasing returns to scale where indeterminacy occurs. Although an efficient optimal policy does not exist, some chattering stabilization policies can mimic trajectories whose criterion functional approximates the supremum of the relaxed problem. This configuration is closely related to indeterminacy: by contrast, when the steady state is determined, an optimal policy is likely to exist.

Suggested Citation

  • Aurelien Saidi, 2009. "Can stabilization policies be efficient?," Economics Working Papers ECO2008/01, European University Institute.
    • Handle: RePEc:eui:euiwps:eco2009/01
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    References listed on IDEAS

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    More about this item

    Keywords

    Increasing returns; Indeterminacy; Stabilization policy; Relaxed problems;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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