Optimal Deterministic and Stochastic Macroeconomic Policies for Slovenia: An Application of the OPTCON Algorithm

Neck, Reinhard and Haber, Gottfried and Weyerstrass, Klaus (2010) Optimal Deterministic and Stochastic Macroeconomic Policies for Slovenia: An Application of the OPTCON Algorithm. Computational Economics, 36 (1). pp. 37-45.

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Abstract or Table of Contents

This paper reports about applications of optimal control theory to the analysis of macroeconomic policies for Slovenia during its way into the Euro Area. For this purpose, the model SLOPOL4, a macroeconometric model for Slovenia, is used. Optimal policies are calculated using the OPTCON algorithm, an algorithm for determining (approximately) optimal solutions to deterministic and stochastic control problems. We determine optimal exchange rate and fiscal policies for Slovenia as solutions to optimum control problems with a quadratic objective function and the model SLOPOL4 as constraint. Several optimization experiments under different assumptions about the exchange rate regime are carried out. The sensitivity of the results with respect to several assumptions is investigated; in particular, the reaction of the optimal paths on varying the stochastic character of the model parameters is examined. If the stochastic nature of more parameters is taken into consideration, the resulting policies are closer to the deterministic solution than with only a few stochastic parameters.

Item Type: Article in Academic Journal
Keywords: optimal control, econometric model, macroeconomic policy, stochastic control, Slovenia, sensitivity analysis
Classification Codes (e.g. JEL): E5, E6, C5, O5
Status: Published
Date Deposited: 22 Jul 2015 12:19
Last Modified: 01 Apr 2016 14:20
URI: http://irihs.ihs.ac.at/id/eprint/3560

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