Hostname: page-component-586b7cd67f-2plfb Total loading time: 0 Render date: 2024-11-24T08:20:11.693Z Has data issue: false hasContentIssue false
  • English
  • Français

SATISFICING SOLUTIONS TO A MONETARY POLICY PROBLEM

A Viability Theory Approach

Published online by Cambridge University Press:  01 February 2009

Jacek Krawczyk  and
Kunhong Kim
Jacek Krawczyk*
Affiliation:
Victoria University Wellington
Kunhong Kim
Affiliation:
Hallym University
*
Address correspondence to: Jacek Krawczyk, School of Economics & Finance, Faculty of Commerce & Administration, Victoria University Wellington, Pipitea Campus, Rutherford House, P.O. Box 600 Wellington, New Zealand; e-mail: [email protected].
Get access Rights & Permissions [Opens in a new window]

Abstract

Herbert A. Simon, 1978 Economics Nobel Prize laureate, talked about satisficing (his neologism) rather than optimizing as being what economists really need. Indeed, optimization might be an unsuitable solution procedure (in that it suggests a unique “optimal” solution) for problems where many solutions could be satisfactory. We think that looking for an applicable monetary policy is a problem of this kind because there is no unique way in which a central bank can achieve a desired inflation (unemployment, etc.) path. We think that it is viability theory, which is a relatively young area of mathematics, that rigorously captures the essence of satisficing. We aim to use viability analysis to analyze a simple macro policy model and show how some robust adjustment rules can be endogenously obtained.

Keywords

Dynamic SystemsViability TheoryMacroeconomic Modeling
Type
Articles
Information
Macroeconomic Dynamics , Volume 13 , Issue 1 , February 2009 , pp. 46 - 80
Copyright
Copyright © Cambridge University Press 2009

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Amato, J. D. and Laubach, T. (1999) The value of interest rate smoothing: How the private sector helps the Federal Reserve. Federal Reserve Bank of Kansas City Economic Review, Third Quarter, 48–64.Google Scholar
Aubin, J.-P. (1997) Dynamical Economic Theory—A Viability Approach. Berlin: Springer-Verlag.CrossRefGoogle Scholar
Aubin, J.-P., Da Prato, G. and Frankowska, H. (2000) Set-Valued Analysis. New York: Springer-Verlag.Google Scholar
Başar, T. and Bernhard, P. (1991) H∞-Optimal Control and Related Minimax Design Problems. Boston: Birkhauser.CrossRefGoogle Scholar
Bene, C., Doyen, L., and Gabay, D. (2001) A viability analysis for a bio-economic model. Ecological Economics 36, 385–396.CrossRefGoogle Scholar
Benhabib, J., Schmitt-Grohe, S. and Uribe, M. (2001) The perils of Taylor rules. Journal of Economic Theory 96, 40–69.CrossRefGoogle Scholar
Cardaliaguet, P., Quincampoix, M., and Saint-Pierre, P. (1999) Set-valued numerical analysis for optimal control and differential games. In Bardi, M., Raghavan, T. E. S. and Parthasarathy, T. (eds.), Annals of the International Society of Dynamic Games, Vol. 4, Stochastic and Differential Games. pp. 177–247. Boston: Birkhäuser.Google Scholar
Clément-Pitiot, H. and Doyen, L. (1999) Exchange Rate Dynamics, Target Zone and Viability. Manuscript, Université Paris X Nanterre.Google Scholar
Clément-Pitiot, H. and Saint-Pierre, P. (2006) Goodwin's models through viability analysis: Some lights for contemporary political economics regulations. In 12th International Conference on Computing in Economics and Finance, June 2006, Cyprus. Available through Conference Maker at http://editorialexpress.com/conference.Google Scholar
Deissenberg, Ch. (1987) On the minimax Lyapunov stablilization of uncertain economies. Journal of Economic Dynamics and Control 11, 229–234.CrossRefGoogle Scholar
De Lara, M., Doyen, L., Guilbaud, T. and Rochet, M.-J. (2006) Is a management framework based on spawning stock biomass indicators sustainable? A viability approach. ICES Journal of Marine Science [doi:10.1093/icesjms/fsm024].CrossRefGoogle Scholar
Doyen, L. and Saint-Pierre, P. (1997) Scale of viability and minimum time of crisis. Set-Valued Analysis 5, 227–246.CrossRefGoogle Scholar
Friedman, M. (1968) The role of monetary policy. The American Economic Review 58, 1–17.Google Scholar
Fuhrer, J. C. (1994) Optimal monetary policy and the sacrifice ratio. In J. C. Fuhrer (ed.), Goals, Guidelines, and Constraints Facing Monetary Policymakers, Conference Series No. 38, Federal Reserve Bank of Boston, pp. 43–69.Google Scholar
Fuhrer, J. C. (1997) The (un)importance of forward-looking behaviour in price specifications. Journal of Money, Credit, and Banking 29 (3), 338–350.CrossRefGoogle Scholar
Fuhrer, J. C. and Moore, G. R. (1995) Inflation persistence. Quarterly Journal of Economics 110 (1), 127–159.CrossRefGoogle Scholar
Hansen, L. P., Sargent, T. J., Turmuhambetova, G. and Williams, N. (2006) Robust control and model misspecification. Journal of Economic Theory 128, 45–90.CrossRefGoogle Scholar
Honkapohja, S. and Mitra, K. (2006) Learning stability in economies with heterogeneous agents. Review of Economic Dynamics 9 (2), 284–309.CrossRefGoogle Scholar
Krawczyk, J. B. and Kim, Kunhong (2004a) A viability theory analysis of a macroeconomic dynamic game. In 2004 Symposium of the International Society of Dynamic Games, December 2004, Tucson, Arizona. Abstract published in Symposium Abstracts by University of Tucson and ISDG. Paper available at http://www.vuw.ac.nz/staff/jacek_krawczk/somepapers/viab_paper2_1.pdf.Google Scholar
Krawczyk, J. B. and Kunhong, Kim (2004b) A viability theory analysis of a simple macroeconomic model. In New Zealand Association of Economists Conference 30th June–2nd July 2004, Wellington, New Zealand. Abstract published in Conference Abstracts by NZAE, Wellington. Paper available at http://www.rieb.kobe-u.ac.jp/academic/ra/seminar-details/krawczk.pdf.Google Scholar
Krawczyk, J. B. and Kunhong, Kim (2004c) Satisficing solutions to a macroeconomic state-constrained control problem: A viability theory approach. In Proceedings of the International Workshop on Optimization and Game Theory: Modeling and Algorithms, Kyoto University, October 7, 2004, Kyoto University, Kyoto, Japan, pp. 29–41.Google Scholar
Krawczyk, J. B. and Sethi, R. (2007) Satisficing solutions for New Zealand monetary policy. Reserve Bank of New Zealand Discussion Paper Series, No. DP2007/03. Available at http://www.rbnz.govt.nz/research/discusspapers/dp07_03.pdf.Google Scholar
Lucas, R. E. (1976) Econometric policy evaluation: A critique. In Brunner, K. and Meltzer, A. (eds.), The Philips Curve and Labour Markets, pp. 19–46, Carnegie-Rochester Conference Series on Public Policy, Vol. 1. Amsterdam: North-Holland.Google Scholar
McCallum, B. T. (2004) A Monetary Policy Rule for Automatic Prevention of a Liquidity Trap. Discussion paper, Carnegie Mellon University & NBER, May 2004.Google Scholar
Martinet, V. and Doyen, L. (2007) Sustainability of an economy with an exhaustible resource: A viable control approach. Resource and Energy Economics 29 (1), 17–39.CrossRefGoogle Scholar
Martinet, V., Thébaud, O., and Doyen, L. (in press) Defining viable recovery paths toward sustainable fisheries. Ecological Economics [doi:10.1016/j.ecolecon.2007.02.036].CrossRefGoogle Scholar
Nishiyama, S. (2003) Inflation Target as a Buffer against Liquidity Trap. Manuscript, Institute for Monetary and Economic Studies, Bank of Japan, August 2003.Google Scholar
Pujal, D. and Saint-Pierre, P. (2006) Capture basin algorithm for evaluating and managing complex financial instruments. In 12th International Conference on Computing in Economics and Finance, June 2006, Cyprus. Available through Conference Maker at http://editorialexpress.com/conference.Google Scholar
Rudebusch, G. D. and Svensson, L. E. O. (1999) Policy Rules for Inflation Targeting. In Taylor, J. (ed.), Monetary Policy Rules. Chicago: University of Chicago Press.Google Scholar
Rustem, B. (1994) Stochastic and robust control of nonlinear economic systems. European Journal of Operational Research 73, 304–318.CrossRefGoogle Scholar
Saint-Pierre, P. (1994) Approximation of viability kernel. Applied Mathematics and Optimization 29, 187–209.CrossRefGoogle Scholar
Saint-Pierre, P. (2001) Controle viable et controle des crises de l'evolution salaire-emploi dans le modele de Goodwin. Centre de Recherche Viabilite, Jeux, Controle, Universite Paris IX—Dauphine.Google Scholar
Smirnov, G. V. (2002) Introduction to the Theory of Differential Inclusions. Providence, RI: American Mathematical Society.Google Scholar
Simon, H. A. (1955) A behavioral model of rational choice. Quarterly Journal of Economics 69, 99–118.CrossRefGoogle Scholar
Svensson, L. E. O. (2002) Open-economy inflation targeting. Journal of International Economics 50, 155–183.CrossRefGoogle Scholar
Walsh, C. E. (2003), Monetary Theory and Policy. Cambridge, MA: MIT Press.Google Scholar
aković, S., Rustem, B. and Wieland, V. (2002) A continuous minimax problem and its application to inflation targeting. In Zaccour, G. (ed.), Decision and Control in Management Science. Boston: Kluwer Academic Publishers.Google Scholar
aković, S., Wieland, V. and Rustem, B. (2006) Stochastic optimization and worst-case analysis in monetary policy design. Computational Economics [doi:10.1007/s10614-005-9012-4].CrossRefGoogle Scholar