The Rational Expectation Hypothesis, Time-Varying Parameters and Adaptive Control
One of the major controversies in macroeconomics over the last 30 years has been that on the effectiveness of stabilization policies. However, this debate, between those who believe that this kind of policies is useless if not harmful and those who argue
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Advances in Computational Economics VOLUME 19
SERIES EDITORS Hans Amman, University ofAmsterdam, The Netherlands Anna Nagurney, University of Massachusetts at Amherst, USA
EDITORIAL BOARD Anantha K. Duraiappah, European University Institute John Geweke, University ofMinnesota Manfred Gilli, University of Geneva Kenneth L. Judd, Stanford University David Kendrick, University of Texas at Austin Daniel McFadden, University of California at Berkeley Ellen McGrattan, Duke University Reinhard Neck, University of Klagenfurt Adrian R. Pagan, Australian National University John Rust, University of Wisconsin Berc Rustem, University of London Hal R. Varian, University of Michigan
The titles published in this series are listed at the end a/this volume
The Rational Expectation Hypothesis, Time-Varying Parameters and Adaptive Control A Promising Combination? by
Marco P. Tucci
~ Springer
Library of Congress Cataloging-in-Publication Data
ISBN 978-1-4757-1061-8 DOI 10.1007/978-1-4020-2874-8
ISBN 978-1-4020-2874-8 (eBook)
Published by Springer, P.O. Box 17, 3300 AA Dordrecht, The Netherlands. Sold and distributed in North, Central and South America by Springer, 101 Philip Drive, NorweH, MA 02061, U.S.A. In alI other countries, sold and distributed by Springer, P.O. Box 322, 3300 AH Dordrecht, The Netherlands.
Printed on acid-free paper
springeronline.com AH Rights Reserved © 2004 Springer Softcover reprint ofthe hardcover lst edition 2004 No part of this work may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, microfilming, recording Of otherwise, without written permis sion from the Publisher, with the exception of any material supplied specifically for the purpose of being entered and executed on a computer system, for exclusive use by the purchaser of the work.
To my Professors
CONTENTS
LIST OF FIGURES
xi
LIST OF TABLES
xiii
PREFACE
xv
ACKNOWLEDGEMENT 1
INTRODUCTION Introduction 1.1 1.2 Adaptive control and time-varying parameters Time-varying parameters and the rational expectations hypothesis 1.3 1.4 The organization of the book 1.5 Suggestion for future research
Part 1: 2
3
2 5 7 10
ADAPTIVE CONTROL AND TIME-VARYING PARAMETERS
KENDRICK'S (1981) CASE Introduction Statement of the problem One-period ahead projection of the mean and variance of the augmented state vector z 2.4 The nominal path for the states and controls 2.5 Riccati equations for the K matrix of the augmented system 2.6 Riccati equations for the p vector of the augmented system 2.7 Updating and projecting the covariances of the augmented system 2.8 The approximate cost-to-go 2.9 Updating the state vector of the augmented system 2.10 Conclusion
2.1 2.2 2.3
THE UNCERTAIN PARAMETER MEAN CASE Introduction Statement of the problem One-period ahead projection of the mean and variance of the augmented state vector z 3.4 The nominal path for the states and controls 3.5 Riccati equations for the K matrix of the augmented system
3.1 3.2 3.3
xvii
15 16 19 22
