IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

Optimal experimentation and the perturbation method in the neighborhood of the augmented linear regulator problem

  • Cosimano, Thomas F.

The perturbation method is used to approximate optimal experimentation problems. The approximation is in the neighborhood of the linear regulator (LR) problem. The first order perturbation of the optimal decision under experimentation is a combination of the LR solution and a term that captures the impact of the uncertainty on the agent's value function. An algorithm is developed in a companion paper to quickly implement this procedure on the computer. As a result, the impact of optimal experimentation on an agent's decisions can be quantified and estimated for a large class of problems encountered in economics.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.sciencedirect.com/science/article/pii/S0165-1889(07)00174-1
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 32 (2008)
Issue (Month): 6 (June)
Pages: 1857-1894

as
in new window

Handle: RePEc:eee:dyncon:v:32:y:2008:i:6:p:1857-1894
Contact details of provider: Web page: http://www.elsevier.com/locate/jedc

References listed on IDEAS
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.:

as in new window
  1. Volker W. Wieland, 1996. "Learning by doing and the value of optimal experimentation," Finance and Economics Discussion Series 96-5, Board of Governors of the Federal Reserve System (U.S.).
  2. William A. Brock & Steven N. Durlauf & Kenneth D. West, 2003. "Policy Evaluation in Uncertain Economic Environments," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(1), pages 235-322.
  3. Patrick Bolton & Christopher Harris, 1999. "Strategic Experimentation," Econometrica, Econometric Society, vol. 67(2), pages 349-374, March.
  4. Anderson, Evan W. & McGrattan, Ellen R. & Hansen, Lars Peter & Sargent, Thomas J., 1996. "Mechanics of forming and estimating dynamic linear economies," Handbook of Computational Economics, in: H. M. Amman & D. A. Kendrick & J. Rust (ed.), Handbook of Computational Economics, edition 1, volume 1, chapter 4, pages 171-252 Elsevier.
  5. Kendrick, David A., 2005. "Stochastic control for economic models: past, present and the paths ahead," Journal of Economic Dynamics and Control, Elsevier, vol. 29(1-2), pages 3-30, January.
  6. Godfrey Keller & Sven Rady, 1997. "Optimal Experimentation in a Changing Environment," STICERD - Theoretical Economics Paper Series 333, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  7. Balvers, Ronald J. & Cosimano, Thomas F., 1993. "Periodic learning about a hidden state variable," Journal of Economic Dynamics and Control, Elsevier, vol. 17(5-6), pages 805-827.
  8. Brock,W.A. & Durlauf,S.N., 2004. "Local robustness analysis : theory and application," Working papers 22, Wisconsin Madison - Social Systems.
  9. Trefler, Daniel, 1993. "The Ignorant Monopolist: Optimal Learning with Endogenous Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(3), pages 565-81, August.
  10. Hansen, Lars Peter & Sargent, Thomas J., 2003. "Robust control of forward-looking models," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 581-604, April.
  11. Ronald J. Balvers & Thomas F. Cosimano, 1994. "Inflation Variability and Gradualist Monetary Policy," Review of Economic Studies, Oxford University Press, vol. 61(4), pages 721-738.
  12. Volker W. Wieland, 1999. "Monetary policy, parameter uncertainty and optimal learning," Finance and Economics Discussion Series 1999-48, Board of Governors of the Federal Reserve System (U.S.).
  13. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-59, September.
  14. McGrattan, Ellen R., 1994. "A note on computing competitive equilibria in linear models," Journal of Economic Dynamics and Control, Elsevier, vol. 18(1), pages 149-160, January.
  15. Marcet, Albert & Sargent, Thomas J., 1989. "Convergence of least squares learning mechanisms in self-referential linear stochastic models," Journal of Economic Theory, Elsevier, vol. 48(2), pages 337-368, August.
  16. Easley, David & Kiefer, Nicholas M, 1988. "Controlling a Stochastic Process with Unknown Parameters," Econometrica, Econometric Society, vol. 56(5), pages 1045-64, September.
  17. 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.
  18. MacRae, Elizabeth Chase, 1975. "An Adaptive Learning Rule for Multiperiod Decision Problems," Econometrica, Econometric Society, vol. 43(5-6), pages 893-906, Sept.-Nov.
  19. Kenneth L. Judd, 1998. "Numerical Methods in Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262100711, March.
  20. Jess Gaspar & Kenneth L. Judd, 1997. "Solving Large Scale Rational Expectations Models," NBER Technical Working Papers 0207, National Bureau of Economic Research, Inc.
  21. Aghion Philippe & Bolton, Patrick & Harris Christopher & Jullien Bruno, 1991. "Optimal learning by experimentation," CEPREMAP Working Papers (Couverture Orange) 9104, CEPREMAP.
  22. Chen, Yu & Cosimano, Thomas F. & Himonas, Alex A., 2008. "Analytic solving of asset pricing models: The by force of habit case," Journal of Economic Dynamics and Control, Elsevier, vol. 32(11), pages 3631-3660, November.
  23. Santos, Manuel S., 1994. "Smooth dynamics and computation in models of economic growth," Journal of Economic Dynamics and Control, Elsevier, vol. 18(3-4), pages 879-895.
  24. Kiefer, Nicholas M & Nyarko, Yaw, 1989. "Optimal Control of an Unknown Linear Process with Learning," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(3), pages 571-86, August.
  25. Paul Klemperer, 1995. "Competition when Consumers have Switching Costs: An Overview with Applications to Industrial Organization, Macroeconomics, and International Trade," Review of Economic Studies, Oxford University Press, vol. 62(4), pages 515-539.
  26. Giuseppe Moscarini & Lones Smith, 2001. "The Optimal Level of Experimentation," Econometrica, Econometric Society, vol. 69(6), pages 1629-1644, November.
  27. Elizabeth Chase MacRae, 1972. "Linear Decision with Experimentation," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 1, number 4, pages 437-447 National Bureau of Economic Research, Inc.
  28. Balvers, Ronald J & Cosimano, Thomas F, 1990. "Actively Learning about Demand and the Dynamics of Price Adjustment," Economic Journal, Royal Economic Society, vol. 100(402), pages 882-98, September.
  29. Lars Peter Hansen & Thomas J. Sargent, 2001. "Acknowledging Misspecification in Macroeconomic Theory," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(3), pages 519-535, July.
  30. Wieland Volker, 2006. "Monetary Policy and Uncertainty about the Natural Unemployment Rate: Brainard-Style Conservatism versus Experimental Activism," The B.E. Journal of Macroeconomics, De Gruyter, vol. 6(1), pages 1-34, March.
  31. Prescott, Edward C, 1972. "The Multi-Period Control Problem Under Uncertainty," Econometrica, Econometric Society, vol. 40(6), pages 1043-58, November.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:dyncon:v:32:y:2008:i:6:p:1857-1894. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.