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New Insights Into Optimal Control of Nonlinear Dynamic Econometric Models: Application of a Heuristic Approach

Author

Listed:
  • D. Blueschke

    () (University of Klagenfurt, Austria)

  • V. Blueschke-Nikolaeva

    () (University of Klagenfurt, Austria)

  • Ivan Savin

    () (DFG Research Training Program "The Economics of Innovative Change", Friedrich Schiller University Jena and the Max Planck Institute of Economics, Jena)

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.

Suggested Citation

  • D. Blueschke & V. Blueschke-Nikolaeva & Ivan Savin, 2012. "New Insights Into Optimal Control of Nonlinear Dynamic Econometric Models: Application of a Heuristic Approach," Jena Economic Research Papers 2012-008, Friedrich-Schiller-University Jena.
  • Handle: RePEc:jrp:jrpwrp:2012-008
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    References listed on IDEAS

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    3. Lyra, M. & Paha, J. & Paterlini, S. & Winker, P., 2010. "Optimization heuristics for determining internal rating grading scales," Computational Statistics & Data Analysis, Elsevier, vol. 54(11), pages 2693-2706, November.
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    5. 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.
    6. Ivan Savin & Peter Winker, 2012. "Heuristic Optimization Methods for Dynamic Panel Data Model Selection: Application on the Russian Innovative Performance," Computational Economics, Springer;Society for Computational Economics, vol. 39(4), pages 337-363, April.
    7. Reinhard Neck & Dmitri Blueschke & Klaus Weyerstrass, 2011. "Optimal macroeconomic policies in a financial and economic crisis: a case study for Slovenia," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 38(3), pages 435-459, July.
    8. 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.
    9. 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, July.
    10. Friedman, Benjamin M, 1972. "Optimal Economic Stabilization Policy: An Extended Framework," Journal of Political Economy, University of Chicago Press, vol. 80(5), pages 1002-1022, Sept.-Oct.
    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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    Citations

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    Cited by:

    1. 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.
    2. repec:spr:annopr:v:247:y:2016:i:2:d:10.1007_s10479-015-1879-4 is not listed on IDEAS
    3. Savin, Ivan & Egbetokun, Abiodun, 2016. "Emergence of innovation networks from R&D cooperation with endogenous absorptive capacity," Journal of Economic Dynamics and Control, Elsevier, vol. 64(C), pages 82-103.
    4. Ivan Savin & Dmitri Blueschke, 2016. "Lost in Translation: Explicitly Solving Nonlinear Stochastic Optimal Control Problems Using the Median Objective Value," Computational Economics, Springer;Society for Computational Economics, vol. 48(2), pages 317-338, August.
    5. Herrmann, Johannes & Savin, Ivan, 2015. "Evolution of the electricity market in Germany: Identifying policy implications by an agent-based model," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112959, Verein für Socialpolitik / German Economic Association.
    6. Herrmann, J.K. & Savin, I., 2017. "Optimal policy identification: Insights from the German electricity market," Technological Forecasting and Social Change, Elsevier, vol. 122(C), pages 71-90.
    7. 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.
    8. Dimitri Blueschke & Viktoria Blüschke-Nikolaeva & Ivan Savin, 2015. "Slow and steady wins the race: approximating Nash equilibria in nonlinear quadratic tracking games," Jena Economic Research Papers 2015-011, Friedrich-Schiller-University Jena.
    9. Dmitri Blueschke & Ivan Savin, 2015. "No such thing like perfect hammer: comparing different objective function specifications for optimal control," Jena Economic Research Papers 2015-005, Friedrich-Schiller-University Jena.
    10. D. Blueschke & I. Savin, 2017. "No such thing as a perfect hammer: comparing different objective function specifications for optimal control," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 25(2), pages 377-392, June.

    More about this item

    Keywords

    Differential evolution; dynamic programming; nonlinear optimization; optimal control;

    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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