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Constrained Optimal Control Under Limited Knowledge

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  • Ric D. Herbert and Rod D. Bell

Abstract

This paper examines the issue of the generation of optimal control policies where there are explicit constraints upon the control values and there is limited knowledge of the complex economic system. The paper develops a methodology where the constrained optimal control is based upon a learning model that predicts the policy targets for the economic system. A subset of the control policy is applied to the economic system and from the response of the system a new predictive model and resultant optimal controls are generated. The methodology is then repeated. Numeric examples of the methodology as applied to a macroeconomic model are presented in the paper.

Suggested Citation

  • Ric D. Herbert and Rod D. Bell, 2001. "Constrained Optimal Control Under Limited Knowledge," Computing in Economics and Finance 2001 14, Society for Computational Economics.
    • Handle: RePEc:sce:scecf1:14
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    References listed on IDEAS

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    1. Powell, Alan A., 2000. "From Dornbusch to Murphy: Stylized Monetary Dynamics of a Contemporary Macroeconometric Model," Journal of Policy Modeling, Elsevier, vol. 22(1), pages 99-116, January.
    2. Orphanides, Athanasios & Wieland, Volker, 2000. "Inflation zone targeting," European Economic Review, Elsevier, vol. 44(7), pages 1351-1387, June.
    3. Murphy, C W, 1988. "An Overview of the Murphy Model," Australian Economic Papers, Wiley Blackwell, vol. 27(0), pages 175-199, Supplemen.
    4. 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.
    5. Neck, Reinhard & Matulka, Josef, 1994. "Stochastic optimum control of macroeconometric models using the algorithm OPTCON," European Journal of Operational Research, Elsevier, vol. 73(2), pages 384-405, March.
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    More about this item

    Keywords

    Constrained Optimal Control; Monetary Policy;

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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