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The parameter set in an adaptive control Monte Carlo experiment: Some considerations

  • Tucci, Marco P.
  • Kendrick, David A.
  • Amman, Hans M.

Comparisons of various methods for solving stochastic control economic models can be done with Monte Carlo methods. These methods have been applied to simple one-state, one-control quadratic-linear tracking models; however, large outliers may occur in a substantial number of the Monte Carlo runs when certain parameter sets are used in these models. Building on the work of Mizrach (1991) and (Amman and Kendrick, 1994) and (Amman and Kendrick, 1995), this paper tracks the source of these outliers to two sources: (1) the use of a zero for the penalty weights on the control variables and (2) the generation of near-zero initial estimate of the control parameter in the systems equations by the Monte Carlo routine. This result leads to an understanding of why both the unsophisticated optimal feedback (certainty equivalence) and the sophisticated dual methods do poorly in some Monte Carlo comparisons relative to the moderately sophisticated expected optimal feedback method.

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

Volume (Year): 34 (2010)
Issue (Month): 9 (September)
Pages: 1531-1549

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Handle: RePEc:eee:dyncon:v:34:y:2010:i:9:p:1531-1549
Contact details of provider: Web page: http://www.elsevier.com/locate/jedc

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  1. 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.
  2. David Kendrick & Hans Amman, 2006. "A Classification System for Economic Stochastic Control Models," Computational Economics, Society for Computational Economics, vol. 27(4), pages 453-481, June.
  3. 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.
  4. Mizrach, Bruce, 1991. "Nonconvexities in a stochastic control problem with learning," Journal of Economic Dynamics and Control, Elsevier, vol. 15(3), pages 515-538, July.
  5. A.L. Norman & M.R. Norman & C.J. Palash, 1979. "Multiple relative maxima in optimal macroeconomic policy: an illustration," Special Studies Papers 134, Board of Governors of the Federal Reserve System (U.S.).
  6. M.P. Tucci & D.A. Kendrick & H.M. Amman, 2011. "Expected optimal feedback with Time-Varying Parameters," Working Papers 11-18, Utrecht School of Economics.
  7. Cosimano, Thomas F., 2008. "Optimal experimentation and the perturbation method in the neighborhood of the augmented linear regulator problem," Journal of Economic Dynamics and Control, Elsevier, vol. 32(6), pages 1857-1894, June.
  8. MacRae, Elizabeth Chase, 1975. "An Adaptive Learning Rule for Multiperiod Decision Problems," Econometrica, Econometric Society, vol. 43(5-6), pages 893-906, Sept.-Nov.
  9. Kendrick, David, 1978. "Non-convexities from probing in adaptive control problems," Economics Letters, Elsevier, vol. 1(4), pages 347-351.
  10. Tucci, Marco P, 1998. "The Nonconvexities Problem in Adaptive Control Models: A Simple Computational Solution," Computational Economics, Society for Computational Economics, vol. 12(3), pages 203-22, December.
  11. Amman, Hans M & Kendrick, David A, 1995. "Nonconvexities in Stochastic Control Models," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(2), pages 455-75, May.
  12. 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.
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