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Optimal Control of the Money Supply

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  • Robert B. Litterman

Abstract

Using optimal control theory and a vector autoregressive representation of the relationship between money and interest rates, one can derive a feedback control procedure which defines the best possible tradeoff between interest rate volatility and money supply fluctuations and which could be used to reduce both from their current levels.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0912.

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Date of creation: Jun 1982
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Publication status: published as Quarterly Review, Federal Reserve Bank of Minneapolis, Fall 1982, 6(3): 1-9.
Handle: RePEc:nbr:nberwo:0912

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  1. Tobin, James, 1972. "Inflation and Unemployment," American Economic Review, American Economic Association, American Economic Association, vol. 62(1), pages 1-18, March.
  2. Paul A. Anderson, 1979. "Help for the regional economic forecaster: vector autoregression," Quarterly Review, Federal Reserve Bank of Minneapolis, Federal Reserve Bank of Minneapolis, issue Sum.
  3. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, Econometric Society, vol. 48(1), pages 1-48, January.
  4. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 1(1), pages 19-46, January.
  5. Robert B. Litterman, 1982. "A use of index models in macroeconomic forecasting," Staff Report, Federal Reserve Bank of Minneapolis 78, Federal Reserve Bank of Minneapolis.
  6. Thomas J. Sargent & Christopher A. Sims, 1977. "Business cycle modeling without pretending to have too much a priori economic theory," Working Papers, Federal Reserve Bank of Minneapolis 55, Federal Reserve Bank of Minneapolis.
  7. Kalchbrenner, J H & Tinsley, Peter A, 1976. "On the Use of Feedback Control in the Design of Aggregate Monetary Policy," American Economic Review, American Economic Association, American Economic Association, vol. 66(2), pages 349-55, May.
  8. Kareken, John H & Wallace, Neil, 1978. "Deposit Insurance and Bank Regulation: A Partial-Equilibrium Exposition," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 51(3), pages 413-38, July.
  9. Rockoff, Hugh, 1974. "The Free Banking Era: A Reexamination," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 6(2), pages 141-67, May.
  10. Holbrook, Robert S, 1972. "Optimal Economic Policy and the Problem of Instrument Instability," American Economic Review, American Economic Association, American Economic Association, vol. 62(1), pages 57-65, March.
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Cited by:
  1. Howard Bodenhorn, 2004. "Free Banking and Bank Entry in Nineteenth-Century New York," NBER Working Papers 10654, National Bureau of Economic Research, Inc.
  2. Bennett T. McCallum, 1982. "Macroeconomics After a Decade of Rational Expectations: Some Critical Issues," NBER Working Papers 1050, National Bureau of Economic Research, Inc.
  3. David Andolfatto, 2005. "On the Coexistence of Money and Bonds," 2005 Meeting Papers, Society for Economic Dynamics 9, Society for Economic Dynamics.
  4. Robert B. Litterman, 1984. "Forecasting and policy analysis with Bayesian vector autoregression models," Quarterly Review, Federal Reserve Bank of Minneapolis, Federal Reserve Bank of Minneapolis, issue Fall.

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