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

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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.

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  1. Woodrow Wilson School, Princeton University, 409 Robertson Hall, Princeton, NJ, 08544-1013, U.S.A.; E-mail

    Seung-Rae Kim

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Kim, SR. Uncertainty, Political Preferences, and Stabilization: Stochastic Control Using Dynamic CGE Models. Computational Economics 24, 97–116 (2004). https://doi.org/10.1023/B:CSEM.0000049438.56302.14

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  • DOI: https://doi.org/10.1023/B:CSEM.0000049438.56302.14

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