An escape time interpretation of robust control

Inkoo Cho and Kenneth Kasa

Journal of Economic Dynamics and Control, 2014, vol. 42, issue C, 1-12

Abstract: This paper studies the problem of an agent who wants to prevent the state from exceeding a critical threshold. Even though the agent is presumed to know the model, the optimal policy is computed by solving a conventional robust control problem. That is, robustness is induced here by objectives rather than uncertainty, and so is an example of the duality between risk-sensitivity and robustness. However, here the agent only incurs costs upon escape to a critical region, not during ‘normal times’. We argue that this is often a more realistic model of macroeconomic policymaking.

Keywords: Robust control; Large deviations (search for similar items in EconPapers)
JEL-codes: C61 D81 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (1)

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Working Paper: An Escape Time Interpretation of Robust Control (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:42:y:2014:i:c:p:1-12

DOI: 10.1016/j.jedc.2014.02.014

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