Fiscal stimulus as an optimal control problem
During the Great Recession, Democrats in the United States argued that government spending could be utilized to "grease the wheels" of the economy in order to create wealth and to increase employment; Republicans, on the other hand, contended that government spending is wasteful and discouraged investment, thereby increasing unemployment. Today, in 2020, we find ourselves in the midst of another crisis where government spending and fiscal stimulus is again being considered as a solution. In the present paper, we address this question by formulating an optimal control problem generalizing the model of Radner & Shepp (1996). The model allows for the company to borrow continuously from the government. We prove that there exists an optimal strategy; rigorous verification proofs for its optimality are provided. We proceed to prove that government loans increase the expected net value of a company. We also examine the consequences of different profit-taking behaviors among firms who receive fiscal stimulus.
Code (0)
등록된 구현이 없습니다.
Similar Papers 제목 키워드 기반
Fiscal Stimulus of Last Resort
I examine global dynamics in a monetary model with overlapping generations of finite-horizon agents and a binding lower bound on nominal interest rates. Debt targeting rules exacerbate the possibility of self-fulfilling …
A Stochastic Control Approach to Public Debt Management
We discuss a class of debt management problems in a stochastic environment model. We propose a model for the debt-to-GDP (Gross Domestic Product) ratio where the government interventions via fiscal policies affect the pu…
ManagementRamsey Optimal Policy versus Multiple Equilibria with Fiscal and Monetary Interactions
We consider a frictionless constant endowment economy based on Leeper (1991). In this economy, it is shown that, under an ad-hoc monetary rule and an ad-hoc fiscal rule, there are two equilibria. One has active monetary …
Optimizing Execution Cost Using Stochastic Control
We devise an optimal allocation strategy for the execution of a predefined number of stocks in a given time frame using the technique of discrete-time Stochastic Control Theory for a defined market model. This market str…
Relief and Stimulus in A Cross-sector Multi-product Scarce Resource Supply Chain Network
In the era of a growing population, systemic changes to the world, and the rising risk of crises, humanity has been facing an unprecedented challenge of resource scarcity. Confronting and addressing the issues concerning…