Abstract
In this paper I will survey the development of stochastic control theory in macroeconomic policy analysis. The development can conveniently be separated into three periods. The first is pre-1970 when the major ideas of policy analysis and of optimization were formed. The second is the early and middle 1970s when formal stochastic control theory was rapidly developed for and applied to the study of macroeconomic policy. The third period, beginning in the late 1970s, was stimulated by the introduction of the idea of rational expectations in economic analysis. This introduction has a significant impact on the way stochastic control theory is applied to studying the effects of given macroeconomic policy rules. The main ideas in the three periods will be set forth in turn.
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