In this paper we present a method for using rational expectations in a linear-quadratic optimizationframework. Following the approach put forward by Sims, we solve the model through a QZdecomposition, which is generally easier to implement than the more widely used method of Blanchardand Kahn.

In the economics literature there are two dominant approaches for solving models with optimal experimentation (also called active learning). The first approach is based on the value function and the second on an approximation method. In principle the value function approach is the preferred...

This chapter of the Handbook of Computational Economics is mostly about research on active learning and is confined to discussion of learning in dynamic models in which the systems equations are linear, the criterion function is quadratic and the additive noise terms are Gaussian. Though there...

In this paper we derive the closed loop form of the Expected Optimal Feedback rule, sometimes called passive learning stochastic control, with time varying parameters. As such this paper extends the work of Kendrick (1981,2002, Chapter 6) where parameters are assumed to vary randomly around a...

In this paper we turn our attention to comparing the policy function obtained by Beck and Wieland (2002) to the one obtained with adaptive control methods. It is an integral part of the optimal learning method used by Beck and Wieland to obtain a policy function that provides the optimal control...

In times of rapid macroeconomic change it would seem useful for both fiscal and monetary policy to be modified frequently. This is true for monetary policy with monthly meetings of the Open Market Committee. It is not true for fiscal policy which mostly varies with the annual Congressional...

This paper analyzes the impact that terms of trade (TOT) are likely to have on the growth of the People’s Republic of China’s (PRC) neighboring countries. Two scenarios employing a dynamic computable general equilibrium framework are considered: (i) a convergence scenario, where historical...

Many studies, both of Australia and of comparable developed economies, have found that the economic benefits from investment in urban infrastructure are substantial. However the nature of this infrastructure is often such that it is under-provided by the private sector. In Australia, much of the...

What are the economic effects of TTIP? In the public debate, a few selected studies, mostly commissioned by the European Commission, have set the tone, suggesting that effects are positive on both sides of the Atlantic. The studies are from Ecorys (2009), CEPR (2013), CEPII (2013) and...