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New Insights Into Optimal Control of Nonlinear Dynamic Econometric Models: Application of a Heuristic Approach

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  • D. Blueschke

    ()
    (University of Klagenfurt, Austria)

  • V. Blueschke-Nikolaeva

    ()
    (University of Klagenfurt, Austria)

  • Ivan Savin

    ()
    (DFG Research Training Program "The Economics of Innovative Change", Friedrich Schiller University Jena and the Max Planck Institute of Economics, Jena)

Abstract

Optimal control of dynamic econometric models has a wide variety of applications including economic policy relevant issues. There are several algorithms extending the basic case of a linear-quadratic optimization and taking nonlinearity and stochastics into account, but being still limited in a variety of ways, e.g., symmetry of the objective function and identical data frequencies of control variables. To overcome these problems, an alternative approach based on heuristics is suggested. To this end, we apply a 'classical' algorithm (OPTCON) and a heuristic approach (Differential Evolution) to three different econometric models and compare their performance. In this paper we consider scenarios of symmetric and asymmetric quadratic objective functions. Results provide a strong support for the heuristic approach encouraging its further application to optimum control problems.

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Bibliographic Info

Paper provided by Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics in its series Jena Economic Research Papers with number 2012-008.

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Date of creation: 07 Mar 2012
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Handle: RePEc:jrp:jrpwrp:2012-008

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Keywords: Differential evolution; dynamic programming; nonlinear optimization; optimal control;

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  1. Neck, Reinhard, 1984. "Stochastic control theory and operational research," European Journal of Operational Research, Elsevier, vol. 17(3), pages 283-301, September.
  2. Reinhard Neck & Dmitri Blueschke & Klaus Weyerstrass, 2011. "Optimal macroeconomic policies in a financial and economic crisis: a case study for Slovenia," Empirica, Springer, vol. 38(3), pages 435-459, July.
  3. A. Robert Nobay & David A. Peel, 2003. "Optimal Discretionary Monetary Policy in a Model of Asymmetric Central Bank Preferences," Economic Journal, Royal Economic Society, vol. 113(489), pages 657-665, 07.
  4. Lyra, M. & Paha, J. & Paterlini, S. & Winker, P., 2010. "Optimization heuristics for determining internal rating grading scales," Computational Statistics & Data Analysis, Elsevier, vol. 54(11), pages 2693-2706, November.
  5. Peter Winker & Marianna Lyra & Chris Sharpe, 2011. "Least median of squares estimation by optimization heuristics with an application to the CAPM and a multi-factor model," Computational Management Science, Springer, vol. 8(1), pages 103-123, April.
  6. Viktoria Blüschke-Nikolaeva & Dmitri Blüschke & Reinhard Neck, 2010. "Optimal Control of Nonlinear Dynamic Econometric Models: An Algorithm and an Application," Working Papers 032, COMISEF.
  7. Friedman, Benjamin Morton, 1972. "Optimal Economic Stabilization Policy: An Extended Framework," Scholarly Articles 4554308, Harvard University Department of Economics.
  8. Chen, Baoline & Zadrozny, Peter A., 2009. "Multi-step perturbation solution of nonlinear differentiable equations applied to an econometric analysis of productivity," Computational Statistics & Data Analysis, Elsevier, vol. 53(6), pages 2061-2074, April.
  9. Cukierman, Alex, 2001. "Are Contemporary Central Banks Transparent about Economic Models and Objectives and What Difference Does it Make?," Discussion Paper Series 1: Economic Studies 2001,05, Deutsche Bundesbank, Research Centre.
  10. Friedman, Benjamin M, 1972. "Optimal Economic Stabilization Policy: An Extended Framework," Journal of Political Economy, University of Chicago Press, vol. 80(5), pages 1002-22, Sept.-Oct.
  11. Ivan Savin & Peter Winker, 2010. "Heuristic Optimization Methods for Dynamic Panel Data Model Selection. Application on the Russian Innovative Performance," Working Papers 027, COMISEF.
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Cited by:
  1. Abiodun Egbetokun & Ivan Savin, 2012. "Absorptive Capacity and Innovation: When Is It Better to Cooperate?," Jena Economic Research Papers 2012-056, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  2. Ivan Savin & Abiodun Egbetokun, 2013. "Emergence of Innovation Networks from R&D Cooperation with Endogenous Absorptive Capacity," Working Papers CEB 13-022, ULB -- Universite Libre de Bruxelles.
  3. Ivan Savin & Dmitri Blueschke, 2013. "Solving nonlinear stochastic optimal control problems using evolutionary heuristic optimization," Jena Economic Research Papers 2013-051, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.

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