Dynamic optimization and forward looking processes

✍ Scribed by Piermarco Cannarsa; Massimo Giannini; Maria Elisabetta Tessitore

• Book ID: 104293525
• Publisher: Elsevier Science
• Year: 1997
• Tongue: English
• Weight: 828 KB
• Volume: 22
• Category: Article
• ISSN: 0165-1889
• DOI: 10.1016/s0165-1889(97)00041-9

✦ Synopsis

We study an optimization problem for a linear system under the action of a noncausal control, i. e. such that the current process variables are effected by future controls. The economic model that motivates this research arises in rational expectation theory, and cannot be treated by standard dynamic programming techniques. We characterize the optimal policy as the unique solution of a fourth-order ordinary differential system with suitable initial and asymptotic conditions. We also discuss the qualitative behaviour of optimally controlled systems. This analysis exhibits instability for a certain parameter range.