Monetary Policy Based on Stochastic Model Predictive Control

Qian DU

Abstract


“Discretion” and “commitment optimal rule” are two types of monetary policy operations. Commitment optimal rule monetary policy can stabilize the public expected inflation to eliminate endogenous tendency to enhance the credibility of monetary policy, but the lack of flexibility. How to design both prospective, stability, and flexible monetary policy has important practical significance. In this paper, we use time-varying coefficients VAR model to build Chinese macroeconomic model, then by means of stochastic model predictive control to study the rules of monetary policy. The simulation results show the effect of model predictive control is better than “commitment optimal rule” which is based on the linear quadratic optimal control.


Keywords


Monetary policy; TVP-VAR; Stochastic model predictive control

Full Text:

PDF

References


Barro, R. J., & Gordon, D. B. (1983). Rules, discretion and reputation in a model of monetary policy. Journal of Monetary Economics, 12(1), 101-121.

Chan, J. C. C., & Jeliazkov, I. (2009). Efficient simulation and integrated likelihood estimation in state space models. International Journal of Mathematical Modelling & Numerical Optimisation, 1(1-2), 101-120(20).

Giordani, P., & Söderlind, P. (2004). Solution of macromodels with Hansen–Sargent robust policies: Some extensions. Journal of Economic Dynamics and Control, 28(12), 2367-2397.

Hansen, L. P., & Sargent, T. J. (2001). Robust control and model uncertainty. American Economic Review, 91(2), 60-66.

Hansen, L. P., & Sargent, T. J. (2003). Robust control of forward-looking models. Journal of Monetary Economics, 50(3), 581-604.

Hansen, L. P, & Sargent, T. J. (2007). Recursive robust estimation and control without commitment. Journal of Economic Theory, 136(1), 1-27.

Hawkins, R. J., Speakes, J. K., & Dan, E. H. (2014). Monetary policy and PID control. Journal of Economic Interaction & Coordination,

Hokayem, P., Cinquemani, E., & Chatterjee, D., et al. (2012). Stochastic receding horizon control with output feedback and bounded controls. Automatica, 48(1), 77-88.

Kydland, F. E., & Prescott, E. C. (1977). Rules rather than discretion: The inconsistency of optimal plans. The Journal of Political Economy, 473-491.

Rotemberg, J., & Woodford, M. (1997). An optimization-based econometric framework for the evaluation of monetary policy. NBER Macroeconomics Annual, 12, 297-361. MIT Press.

Taylor, J. B. (1993). Discretion versus policy rules in practice. Carnegie-Rochester conference series on public policy. North-Holland, 39, 195-214.




DOI: http://dx.doi.org/10.3968/%25x

Refbacks

  • There are currently no refbacks.


Copyright (c) 2016 Canadian Social Science



Reminder

  • How to do online submission to another Journal?
  • If you have already registered in Journal A, then how can you submit another article to Journal B? It takes two steps to make it happen:

1. Register yourself in Journal B as an Author

  • Find the journal you want to submit to in CATEGORIES, click on “VIEW JOURNAL”, “Online Submissions”, “GO TO LOGIN” and “Edit My Profile”. Check “Author” on the “Edit Profile” page, then “Save”.

2. Submission

Online Submission: http://cscanada.org/index.php/css/submission/wizard

  • Go to “User Home”, and click on “Author” under the name of Journal B. You may start a New Submission by clicking on “CLICK HERE”.
  • We only use four mailboxes as follows to deal with issues about paper acceptance, payment and submission of electronic versions of our journals to databases: [email protected]; [email protected]; [email protected]; [email protected]

 Articles published in Canadian Social Science are licensed under Creative Commons Attribution 4.0 (CC-BY).

 

Canadian Social Science Editorial Office

Address: 1020 Bouvier Street, Suite 400, Quebec City, Quebec, G2K 0K9, Canada.
Telephone: 1-514-558 6138 
Website: Http://www.cscanada.net; Http://www.cscanada.org 
E-mail:[email protected]; [email protected]

Copyright © Canadian Academy of Oriental and Occidental Culture