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Expected optimal feedback with Time-Varying Parameters

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  • M.P. Tucci
  • D.A. Kendrick
  • H.M. Amman

Abstract

In this paper we derive the closed loop form of the Expected Optimal Feedback rule, sometimes called passive learning stochastic control, with time varying parameters. As such this paper extends the work of Kendrick (1981,2002, Chapter 6) where parameters are assumed to vary randomly around a known constant mean. Furthermore, we show that the cautionary myopic rule in Beck and Wieland (2002) model, a test bed for comparing various stochastic optimizations approaches, can be cast into this framework and can be treated as a special case of this solution.

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File URL: http://dspace.library.uu.nl/bitstream/handle/1874/273564/11-18.pdf
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Bibliographic Info

Paper provided by Utrecht School of Economics in its series Working Papers with number 11-18.

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Length: 21 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:use:tkiwps:1118

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Related research

Keywords: Optimal experimentation; stochastic optimization; time-varying parameters; expected optimal feedback;

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References

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  1. Elizabeth Chase MacRae, 1972. "Linear Decision with Experimentation," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 1, number 4, pages 435-445 National Bureau of Economic Research, Inc.
  2. Chow, Gregory C, 1975. "A Solution to Optimal Control of Linear Systems with Unknown Parameters," The Review of Economics and Statistics, MIT Press, vol. 57(3), pages 338-45, August.
  3. Tucci, Marco P., 1997. "Adaptive control in the presence of time-varying parameters," Journal of Economic Dynamics and Control, Elsevier, vol. 22(1), pages 39-47, November.
  4. Beck, Gunter W. & Wieland, Volker, 2002. "Learning and control in a changing economic environment," Journal of Economic Dynamics and Control, Elsevier, vol. 26(9-10), pages 1359-1377, August.
  5. MacRae, Elizabeth Chase, 1975. "An Adaptive Learning Rule for Multiperiod Decision Problems," Econometrica, Econometric Society, vol. 43(5-6), pages 893-906, Sept.-Nov.
  6. Turnovsky, Stephen J, 1976. "Optimal Stabilization Policies for Stochastic Linear Systems: The Case of Correlated Multiplicative and Additive Disturbances," Review of Economic Studies, Wiley Blackwell, vol. 43(1), pages 191-94, February.
  7. Chow, Gregory C, 1973. "Effect of Uncertainty on Optimal Control Policies," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 14(3), pages 632-45, October.
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Cited by:
  1. Marco P. Tucci & David A. Kendrick & Hans M. Amman, 2007. "The Parameter Set in an Adaptive Control Monte Carlo Experiment: Some Considerations," Department of Economics University of Siena 507, Department of Economics, University of Siena.

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