Controlling Inflation: The Infinite Horizon Case

Controlling Inflation: The Infinite Horizon Case This paper studies the two-dimensional singular stochastic control problem over an infinite time-interval arising when the Central Bank tries to contain the inflation by acting on the nominal interest rate. It is shown that this problem admits a variational formulation which can be differentiated (in some sense) to lead to a stochastic differential game with stopping times between the conservative and the expansionist tendencies of the Bank. Substantial regularity of the free boundary associated to the differential game is obtained. Existence of an optimal policy is established when the regularity of the free boundary is strengthened slightly, and it is shown that the optimal process is a diffusion reflected at the boundary. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Applied Mathematics and Optimization Springer Journals

Controlling Inflation: The Infinite Horizon Case

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Publisher
Springer-Verlag
Copyright
Copyright © Inc. by 2000 Springer-Verlag New York
Subject
Mathematics; Calculus of Variations and Optimal Control; Optimization; Systems Theory, Control; Theoretical, Mathematical and Computational Physics; Mathematical Methods in Physics; Numerical and Computational Physics, Simulation
ISSN
0095-4616
eISSN
1432-0606
D.O.I.
10.1007/s002459911003
Publisher site
See Article on Publisher Site

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