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Optimal Control and Economic Dynamics

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The New Palgrave Dictionary of Economics

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Abstract

Optimal control methods and the related methods of dynamic programming and the calculus of variations are ubiquitous in the analysis of dynamic economic systems. This is so because the serious modeller of dynamic economic phenomena in positive economics or in welfare economics, in capitalistic economies or in socialist economies is forced to do four things (i) model the restraints that absence of intertemporal arbitrage opportunities places upon the evolution of the economy over time, (ii) relate expectations of future prices to actual past prices and present prices in a useful notion of equilibrium, (iii) model the learning by the economy’s participants of relevant parameters in an evolving economy (iv) design the models so they lead naturally to the implementation of received methods of econometrics in order to confront their predictions with data.

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  1. http://link.springer.com/referencework/10.1057/978-1-349-95121-5

    W. A. Brock

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Brock, W.A. (2018). Optimal Control and Economic Dynamics. In: The New Palgrave Dictionary of Economics. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-349-95189-5_1836

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