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: Inflation, Optimal control theory, Time series analysis, Federal Reserve Bank, and Control theory Subject (JEL): E51 - Money Supply; Credit; Money Multipliers, E58 - Central Banks and Their Policies, and E40 - Money and Interest Rates: General