SIMULATION RESULTS ON THE EVALUATION OF ECONOMIC POLICIES

Abstract

There has recently been a trend toward sophistication in the methods for finding optimal controls of economic systems. Criticism has been voiced about the practical usefulness of such approaches. After giving some attention to the choice of objective function, the present paper considers simple, easily implementable proportional feedback policies and investigates how far they are from the „true” optimum. The effect of lags in the feedback control is also considered.

The policy simulation experiments are carried out on Pindyck's well known 1973 US econometric model using the TROLL computer system, incorporating an optimal control algorithm with an essentially quadratic welfare cost function.