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The robust permanent income model revisited

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  • Marco P. Tucci

    () (Università di Siena, Italy)

Abstract

Abstract: The robust permanent income model discussed in a number of works, see e.g. Hansen et al. (1999, 2002), is reformulated as a linear quadratic tracking problem with a time-varying intercept following a ‘Return to Normality’ model. The results in Tucci (2005), which implicitely assumed desired paths for the states and controls equal to zero, are generalized to the case where the objective function depends upon arbitrary desired paths. By comparing robust control with the optimal control for a linear system with time-varying parameters, in this more general case, it is confirmed that the decision maker applying the former is indeed assuming a very special kind of model misspecification

Suggested Citation

  • Marco P. Tucci, 2006. "The robust permanent income model revisited," Computing in Economics and Finance 2006 129, Society for Computational Economics.
  • Handle: RePEc:sce:scecfa:129
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    More about this item

    Keywords

    Optimal control; robust control; time-varying parameters;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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