CONTROL STABILISATION FOR A SIMPLE MACRO MODEL OF THE SINGAPORE ECONOMY

Abstract

In this academic exercise, short term economic stabilisation policy is approached as a problem in optimal control. Chapter two is a discussion of the optimal control problem which is defined as a deterministic discrete-time tracking problem for a linear time invariant system with a quadratic cost functional. This problem is then solved by the method of Lagrange multipliers. Chapter three describes the construction of the thirteen equation annually econometric model for Singapore. In chapter four, the results of the dynamic simulations and policy experiments on the model are presented and analysed. The overall statistical fit of the model reasonably good considering its size and simplicity. In chapter five, the optimal control solution is applied to the state-apace form of the model. Optimal stabilisation policies are calculated for cost functionals designed to emphasize the use of one or more policy variables, to force single variables to follow nominal path and to impose tradeoffs between the movements of different variables. 'Die results obtained demonstrate that this approach is a viable tool both for policy planning and for analysing the dynamic properties of econometric models