Creator: Litterman, Robert B. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.) 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: Federal Reserve Bank, Control theory, Time series analysis, Optimal control theory, and Inflation Subject (JEL): E51 - Monetary policy, central banking, and the supply of money and credit - Money supply ; Credit ; Money multipliers, E58 - Monetary policy, central banking, and the supply of money and credit - Central banks and their policies, and E40 - Money and interest rates - General