Dynamic Optimization in Two-Party Models
Warwick J. McKibbin; Nouriel Roubini; Jeffrey D. Sachs
- Dynamic Optimization in Two-Party Models
McKibbin, Warwick J.
Sachs, Jeffrey D.
- Working papers
- Earth Institute
- Permanent URL:
- Part Number:
- National Bureau of Economic Research
- Publisher Location:
- Cambridge, Mass.
- The goal of this paper is to study the problem of optimal dynamic policy formulation with competing political parties. We study a general class of problems, in which the two competing political parties have quadratic intertemporal objective functions, and in which the economy has a linear structure and a multidimensional state space. For the general linear quadratic problem we develop a numerical dynamic programming algorithm to solve for optimal policies of each party taking into account the party's objectives; the structure of the economy; the probability of future election results; and the objectives of the other political party.
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