An application of optimal control theory to quantitative policy analysis

Abstract

Etonomic policy analysis has become more quantitative in therecent years. Quantitative economic policy analysis can be simplydefined as describing the economic relations of the economicsystem in question, and the goals of the policy maker as a mathematicalmodel, and analyzing the outcomes of possible policices.A very wide range of economic problems, from economicstabilization and growth to maximization of the discounted dividendstream of a self-financing firm, can be studied by the tools ofquantitative economic policy.Quantitative economic policy analysis is - and most likelywill be a continuously evolving subject. One of the recentaccomplishments in this field is the introduction of of optimalcontrol theory, which is originally an electrical engineeringsubject, to economic applications. Once the economic relations andthe goals of the policy authorities are accurately defined, theemployment of optimal control theory provides us the optimal policythat can be achieved regarding the restrictions of the economy.In the first two parts of this thesis, a literature surveyand history of the relevant subjects are given. In the third,fourth and fifth parts, a simple model of the Turkish economy isconstructed, and some of its characteristics are analyzed.The aim of the sixth part is to illustrate the employment of optimalcontrol theory to linear dynamic economic models.