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Robust Control: A Note on the Timing of Model Uncertainty

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Author Info
Arnulfo Rodriguez
Abstract

In this note a one-state, one-control variable quadratic linear problem with robust control and discount factor is developed to examine the optimal response of the first-period control to changes in future model uncertainty. A change in future model uncertainty has an effect on the optimal first-period control response going in the same direction as the one caused by an equal size change in current model uncertainty. However, both analytical and numerical results show that such effect is much lower than the one derived from a change in current model uncertainty. Moreover, such effect is even much lower as the change in model uncertainty moves farther into the future. Finally, the infinite horizon result confirms the reinforcing nature of the effects on the optimal first-period control response of current and future changes in model uncertainty.

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Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2004 with number 147.

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Date of creation: 11 Aug 2004
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Handle: RePEc:sce:scecf4:147

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Keywords: optimal control model uncertainty robustness macroeconomic policy

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Find related papers by JEL classification:
C61 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - 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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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  2. Arnulfo Rodriguez & Fidel Gonzalez, 2003. "Robust Control: A Note on the Response of the Control to Changes in the Free Parameter," Computing in Economics and Finance 2003 207, Society for Computational Economics.
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  3. P. Ruben Mercado, 2001. "The Timing of Uncertainty and The Intensity of Policy," Computing in Economics and Finance 2001 55, Society for Computational Economics.
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  5. 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. [Downloadable!] (restricted)
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  6. Hans M. Amman & David A. Kendrick, 1996. "The DUALI/DUALPC Software for Optimal Control Models: Introduction," Economics, University of Texas at Austin 9602, Center for Applied Research in Economics. [Downloadable!]
  7. Hans M. Amman & David A. Kendrick, . "Computational Economics," Online economics textbooks, SUNY-Oswego, Department of Economics, number comp1, September. [Downloadable!]
  8. Hans M. Amman & David A. Kendrick, 2003. "A Classification System for Economic Stochastic Control Models," Computing in Economics and Finance 2003 114, Society for Computational Economics.
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  9. Lars Peter Hansen & Thomas J. Sargent, 2001. "Robust Control and Model Uncertainty," American Economic Review, American Economic Association, vol. 91(2), pages 60-66, May. [Downloadable!] (restricted)
  10. J. Tetlow, Robert & von zur Muehlen, Peter, 2001. "Robust monetary policy with misspecified models: Does model uncertainty always call for attenuated policy?," Journal of Economic Dynamics and Control, Elsevier, vol. 25(6-7), pages 911-949, June. [Downloadable!] (restricted)
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