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New insights into optimal control of nonlinear dynamic econometric models: Application of a heuristic approach

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  • Blueschke, D.
  • Blueschke-Nikolaeva, V.
  • Savin, I.

Abstract

Optimal control of dynamic econometric models has a wide variety of applications including economic policy relevant issues. There are several algorithms extending the basic case of a linear-quadratic optimization and taking nonlinearity and stochastics into account, but being still limited in a variety of ways, e.g., symmetry of the objective function and identical data frequencies of control variables. To overcome these problems, an alternative approach based on heuristics is suggested. To this end, we apply a ‘classical’ algorithm (OPTCON) and a heuristic approach (Differential Evolution) to three different econometric models and compare their performance. In this paper we consider scenarios of symmetric and asymmetric quadratic objective functions. Results provide a strong support for the heuristic approach encouraging its further application to optimum control problems.

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

Volume (Year): 37 (2013)
Issue (Month): 4 ()
Pages: 821-837

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Handle: RePEc:eee:dyncon:v:37:y:2013:i:4:p:821-837
Contact details of provider: Web page: http://www.elsevier.com/locate/jedc

Keywords: Differential evolution; Dynamic programming; Nonlinear optimization; Optimal control;

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Find related papers by JEL classification:
  • C54 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Quantitative Policy Modeling
  • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
  • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
  • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
  • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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  1. Friedman, Benjamin Morton, 1972. "Optimal Economic Stabilization Policy: An Extended Framework," Scholarly Articles 4554308, Harvard University Department of Economics.
  2. Alex Cukierman, 2002. "Are contemporary central banks transparent about economic models and objectives and what difference does it make?," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 15-36.
  3. Reinhard Neck & Dmitri Blueschke & Klaus Weyerstrass, 2011. "Optimal macroeconomic policies in a financial and economic crisis: a case study for Slovenia," Empirica, Springer, vol. 38(3), pages 435-459, July.
  4. Marianna Lyra & Johannes Paha & Sandra Paterlini & Peter Winker, 2008. "Optimization Heuristics for Determining Internal Rating Grading Scales," Working Papers 005, COMISEF.
  5. Friedman, Benjamin M, 1972. "Optimal Economic Stabilization Policy: An Extended Framework," Journal of Political Economy, University of Chicago Press, vol. 80(5), pages 1002-22, Sept.-Oct.
  6. Blueschke-Nikolaeva, V. & Blueschke, D. & Neck, R., 2012. "Optimal control of nonlinear dynamic econometric models: An algorithm and an application," Computational Statistics & Data Analysis, Elsevier, vol. 56(11), pages 3230-3240.
  7. Neck, Reinhard, 1984. "Stochastic control theory and operational research," European Journal of Operational Research, Elsevier, vol. 17(3), pages 283-301, September.
  8. A. Robert Nobay & David A. Peel, 2003. "Optimal Discretionary Monetary Policy in a Model of Asymmetric Central Bank Preferences," Economic Journal, Royal Economic Society, vol. 113(489), pages 657-665, 07.
  9. Chen, Baoline & Zadrozny, Peter A., 2009. "Multi-step perturbation solution of nonlinear differentiable equations applied to an econometric analysis of productivity," Computational Statistics & Data Analysis, Elsevier, vol. 53(6), pages 2061-2074, April.
  10. Ivan Savin & Peter Winker, 2010. "Heuristic Optimization Methods for Dynamic Panel Data Model Selection. Application on the Russian Innovative Performance," Working Papers 027, COMISEF.
  11. Peter Winker & Marianna Lyra & Chris Sharpe, 2011. "Least median of squares estimation by optimization heuristics with an application to the CAPM and a multi-factor model," Computational Management Science, Springer, vol. 8(1), pages 103-123, April.
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Cited by:

  1. Abiodun Egbetokun & Ivan Savin, 2014. "Absorptive capacity and innovation: when is it better to cooperate?," Journal of Evolutionary Economics, Springer, vol. 24(2), pages 399-420, April.
  2. Ivan Savin & Abiodun Egbetokun, 2013. "Emergence of Innovation Networks from R&D Cooperation with Endogenous Absorptive Capacity," Jena Economic Research Papers 2013-022, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  3. Ivan Savin & Dmitri Blueschke, 2013. "Solving nonlinear stochastic optimal control problems using evolutionary heuristic optimization," Jena Economic Research Papers 2013-051, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.

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