Uncertainty, Political Preferences, and Stabilization: Stochastic Control Using Dynamic CGE Models

Seung-Rae Kim ()

Computational Economics, 2004, vol. 24, issue 2, 97-116

Abstract: This paper is a step toward the merger of optimal control models with dynamic computable general equilibrium (CGE) models. It demonstrates the usefulness of CGE techniques in control theory application and provides a practical guideline to policymakers in this relatively new field. Uncertainty, short-term quantity adjustment processes, and sector-specific political preferences are taken into account in exploring what time paths of adjustments of the economy would be optimal for a government with explicit policy goals. The experimental results highlight the importance of the structures of political preferences and uncertainty when performing optimal stabilization policy exercises.

Date: 2004
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