Time-Consistent Control in Non-Linear Models

Steven Ambler () and Florian Pelgrin

Staff Working Papers from Bank of Canada

Abstract: We show how to use optimal control theory to derive optimal time-consistent Markov-perfect government policies in nonlinear dynamic general equilibrium models, extending the result of Cohen and Michel (1988) for models with quadratic objective functions and linear dynamics. We replace private agents' costates by flexible functions of current states in the government's maximization problem. The functions are verified in equilibrium to an arbitrarily close degree of approximation. They can be found numerically by perturbation or projection methods. We use a stochastic model of optimal public spending to illustrate the technique.

Keywords: Fiscal policy; Monetary policy framework (search for similar items in EconPapers)
JEL-codes: C63 E61 E62 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2007
New Economics Papers: this item is included in nep-dge and nep-mac
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Related works:
Journal Article: Time-consistent control in nonlinear models (2010)
Working Paper: Time Consistent Control in Non-Linear Models (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:07-3

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