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Optimal stabilization policy with delayed controls and imperfect state measurements

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  • Deissenberg, Christophe

Abstract

The standard optimal control solutions of the macroeconomic stabilization problem - i.e. essentially: the open- and closed-loop solution - are not necessarily implementable or optimal in real-life situations. This is because they do not take into account the time necessary to measure the economy's state and to realize the policy measures physically. In this paper, Dynamic Programming is used to derive, the best implementable solution to the optimisation of a quadratic welfare loss-functional subject to a linear econometric model when there are such delays. Two cases are considered: a) Perfect, but delayed state measurements are possible; b) Only imperfect, delayed measurements are available. In both cases, the analytical characterization of the solution immediately suggests practical schemes for the numerical computation of the optimal policy sequence.

Suggested Citation

  • Deissenberg, Christophe, 1979. "Optimal stabilization policy with delayed controls and imperfect state measurements," Discussion Papers, Series I 133, University of Konstanz, Department of Economics.
    • Handle: RePEc:zbw:kondp1:133
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    1. Gregory Chow, 1972. "How Much Could Be Gained by Optimal Stochastic Control Policies," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 1, number 4, pages 391-406, National Bureau of Economic Research, Inc.
    2. Garbade, Kenneth D, 1976. "On the Existence and Uniqueness of Solutions to Multi-Period Linear/Quadratic Optimal Control Problems," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 17(3), pages 719-731, October.
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    Cited by:

    1. Buiter, Willem H., 1983. "Real effects of anticipated and unanticipated money : Some problems of estimation and hypothesis testing," Journal of Monetary Economics, Elsevier, vol. 11(2), pages 207-224.

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