ON THE USE OF OPTIMAL CONTROL IN MACROECONOMIC MODELLING

Abstract

This paper considers the practical application of optimal control techniques and assesses how useful these techniques are in the analysis of macroeconomic models. We investigate the relationship between simple control methods and simulation techniques. We then survey a variety of applications for optimal control techniques and consider the extent to which such exercises are useful. We then briefly consider the use of penalty function methods for solving consistent expectation models and discuss procedures for the joint optimization/consistent expectations problem.