Creator: Litterman, Robert B. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 200 Abstract:
Using optimal control theory and a vector autoregressive representation of the relationship between money and interest rates one can derive a feedback control procedure which defines the best possible tradeoff between interest rate volatility and money supply fluctuations and which could be used to reduce both from their current levels.
Keyword: Control theory, Inflation, Federal Reserve Bank, Optimal control theory, and Time series analysis Subject (JEL): E51 - Money Supply; Credit; Money Multipliers, E40 - Money and Interest Rates: General, and E58 - Central Banks and Their Policies