Methods for Robust Control

Söderström, Ulf, Kai Leitemo and ,
Authors registered in the RePEc Author Service: Richard Dennis

No 5638, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Robust control allows policymakers to formulate policies that guard against model misspecification. The principal tools used to solve robust control problems are state-space methods (see Hansen and Sargent, 2006, and Giordani and Söderlind, 2004). In this paper we show that the structural-form methods developed by Dennis (2006) to solve control problems with rational expectations can also be applied to robust control problems, with the advantage that they bypass the task, often onerous, of having to express the reference model in state-space form. Interestingly, because state-space forms and structural forms are not unique the two approaches do not necessarily return the same equilibria for robust control problems. We apply both state-space and structural solution methods to an empirical New Keynesian business cycle model and find that the differences between the methods are both qualitatively and quantitatively important. In particular, with the structural-form solution methods the specification errors generally involve changes to the conditional variances in addition to the conditional means of the shock processes.

Keywords: Robust control; Misspecification; Optimal policy (search for similar items in EconPapers)
JEL-codes: C61 E52 E58 (search for similar items in EconPapers)
Date: 2006-04
New Economics Papers: this item is included in nep-cba and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Related works:
Journal Article: Methods for robust control (2009)
Working Paper: Methods for robust control (2006)
Working Paper: Methods for Robust Control (2006)
Working Paper: Methods for Robust Control (2006)
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