Plenary Lecture

Optimal Control of Dynamic Stochastic Systems: Some Mathematical and Computational Approaches

Professor Reinhard Neck
Department of Economics
Alpen-Adria Universität Klagenfurt
Klagenfurt, Austria
E-mail: Reinhard.Neck@uni-klu.ac.at

Abstract: In this paper, we give an introductory overview of the theory of optimal control of dynamic stochastic systems in discrete time. We emphasize the fact that, in spite of considerable work done on the mathematics of such systems, only very few analytical results for special cases are available. In particular, a full solution taking into account the dual effect of optimizing controls is impossible even for very simple problems with one state and one control variable. Therefore one has to resort to numerical approximations when attempting to solve such dynamic optimization problems. We next consider a class of stochastic control problems investigated intensively in the economics literature, which are characterized by a quadratic intertemporal objective function. Such systems often arise in macroeconomic policy problems, in particular in problems of quantitative macroeconomic policy. We survey some of the literature on these problems and discuss the relative advantages and shortcomings of available algorithms for approximating solutions to optimal control problems of this type. Recent work by the presenter and his collaborators is briefly described and illustrated with an application to a macroeconomic policy problem for Slovenia.

Brief Biography of the Speaker: Reinhard Neck was born in 1951 in Vienna, Austria. He received a PhD in statistics and economics from the University of Vienna and the habilitation from the Vienna University of Economics and Business Administration. He was assistant professor at the University of Fribourg, Switzerland and the Vienna University of Economics and Business Administration, Schumpeter Research Fellow at Harvard University, Cambridge, MA, USA, Full Professor of Economics at the Universities of Bielefeld and Osnabruck, Germany, and Austrian Visiting Professor at Stanford University, Stanford, CA, USA. Since 1997, he is Full Professor at the Department of Economics, Klagenfurt University, Klagenfurt, Austria, where he is now Head of Department. 2007 and 2008, he was President of the Austrian Economic Association. At present, he is Chairman of the Austrian Science Society and Vice President of the International Atlantic Economic Society. Neck has edited and co-authored more than 30 books and authored or co-authored more than 270 papers in scientific journals and collective volumes.

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