Robust control in the presence of a colored model error term in discrete time

Marco P. Tucci ()

Department of Economics University of Siena from Department of Economics, University of Siena

Abstract: By explicitly taking into account the welfare loss associated with the various controls, it has been recently shown that the usual, i.e. with white noise model error term, robust control framework in discrete time problems implies that both players (the controller and malevolent nature) optimize their objective functional by treating today's shock (either malevolent or not) as linearly uncorrelated to tomorrow's shock, see e.g. [38]. Therefore, by construction, the most common robust control framework implies that the game at time t is linearly uncorrelated with the game at time t + 1. It is then useless to handle situations characterized by correlated malevolent shocks. In this paper it is assumed that the standard robust control problem in discrete time with unstructured uncertainty à la Hansen and Sargent, i.e. a nonparametric set of additive mean-distorting model perturbations, where the decision maker is assumed to be “probabilistically sophisticated" is characterized by a colored model error (or system disturbance) term. The new ? -constrained worstcase controls for the decision maker and malevolent nature are derived. The e ect of this new assumption on the results of some well known models, like the permanent income model, is discussed.

Keywords: Linear quadratic tracking problem; optimal control; robust optimization; distributional uncertainty; colored model error term (search for similar items in EconPapers)
Date: 2023-12
References: Add references at CitEc
Citations:

Downloads: (external link)
http://repec.deps.unisi.it/quaderni/907.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:usi:wpaper:907

Access Statistics for this paper

More papers in Department of Economics University of Siena from Department of Economics, University of Siena Contact information at EDIRC.
Bibliographic data for series maintained by Fabrizio Becatti ().