The Control of Large-Scale Nonlinear Econometric Systems

Alter pointing out the special characteristics of existing econometric models which form the basis of the application of optimal control techniques for macroeconomic policy analysis and formulation, this paper surveys the use of econometric models for the projection of the economic consequences of alternative policies and the formulation of optimal policies. It presents both the theory and the computational aspects of a particular approach of applying feedback control to study policy options using large-scale nonlinear systems of simultaneous econometric equations. It then illustrates this approach by solving an optimal control problem using the Michigan Quarterly Econometric Model. Some topics of further research are suggested in the conclusion.