Optimal Stabilization with a Quarterly Model of the Federal Republic of Germany

Abstract

With a version of the quarterly model of the German institutes of economic research the question shall be answered whether monetary and fiscal instruments could have been used more effectively to achieve the goals of economic policy in the Federal Republik of Germany in the period from 1975,3 to 1976,2. The model is nonlinear and stochastic. To reduce the sources of inaccuracy the nonlinear stochastic control problem should be solved by stochastic simulation. We report on our efforts to reduce the time needed for various numerical optimizers. Since these efforts are still going on we set the stochastic variables at their expected values and solve the nonlinear control problem by a derivative of the Davidon-Fletcher-Powell-Algorithm. With a number of reservations one can conclude that economic policy instruments could have been used more efficiently during the short period in question.