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Optimal control of the money supply

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  • Robert B. Litterman

Abstract

Using optimal control theory and a vector autoregressive representation of the relationship between money and interest rates, one can derive a feedback control procedure which defines the best possible tradeoff between money supply fluctuations and interest rate volatility and which could be used to reduce both from their current levels.
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  • Robert B. Litterman, 1982. "Optimal control of the money supply," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 6(Fall).
    • Handle: RePEc:fip:fedmqr:y:1982:i:fall:n:v.6no.3
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    References listed on IDEAS

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    1. Holbrook, Robert S, 1972. "Optimal Economic Policy and the Problem of Instrument Instability," American Economic Review, American Economic Association, vol. 62(1), pages 57-65, March.
    2. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
    3. Tobin, James, 1972. "Inflation and Unemployment," American Economic Review, American Economic Association, vol. 62(1), pages 1-18, March.
    4. Kalchbrenner, J H & Tinsley, Peter A, 1976. "On the Use of Feedback Control in the Design of Aggregate Monetary Policy," American Economic Review, American Economic Association, vol. 66(2), pages 349-355, May.
    5. Thomas J. Sargent & Christopher A. Sims, 1977. "Business cycle modeling without pretending to have too much a priori economic theory," Working Papers 55, Federal Reserve Bank of Minneapolis.
    6. Kareken, John H & Wallace, Neil, 1978. "Deposit Insurance and Bank Regulation: A Partial-Equilibrium Exposition," The Journal of Business, University of Chicago Press, vol. 51(3), pages 413-438, July.
    7. Rockoff, Hugh, 1974. "The Free Banking Era: A Reexamination," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 6(2), pages 141-167, May.
    8. Robert S. Pindyck & Steven M. Roberts, 1974. "Optimal Policies for Monetary Control," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 3, number 1, pages 207-237, National Bureau of Economic Research, Inc.
    9. Paul A. Anderson, 1979. "Help for the regional economic forecaster: vector autoregression," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 3(Sum).
    10. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
    11. Robert B. Litterman, 1982. "A use of index models in macroeconomic forecasting," Staff Report 78, Federal Reserve Bank of Minneapolis.
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    Cited by:

    1. Bentour, El Mostafa, 2013. "Oil Prices, Drought Periods and Growth Forecasts in Morocco," MPRA Paper 52892, University Library of Munich, Germany.
    2. Bodenhorn, Howard, 2008. "Free banking and bank entry in nineteenth-century New York," Financial History Review, Cambridge University Press, vol. 15(2), pages 175-201, October.
    3. Robert B. Litterman, 1984. "Forecasting and policy analysis with Bayesian vector autoregression models," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 8(Fall).
    4. Bennett T. McCallum, 1982. "Macroeconomics after a decade of rational expectations : some critical issues," Economic Review, Federal Reserve Bank of Richmond, vol. 68(Nov), pages 3-12.
    5. David Andolfatto, 2005. "On the Coexistence of Money and Bonds," 2005 Meeting Papers 9, Society for Economic Dynamics.
    6. James Peery Cover & C. James Hueng & Ruey Yau, 2002. "Are Policy Rules Better Than The Discretionary System In Taiwan?," Contemporary Economic Policy, Western Economic Association International, vol. 20(1), pages 60-71, January.
    7. Enrique M. Quilis(1), "undated". "Modelos Bvar: Especificación, Estimación E Inferencia," Working Papers 8-02 Classification-JEL :, Instituto de Estudios Fiscales.

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