The Optimal Control of Government Stabilization Funds
We study the optimal control of a government stabilization fund, which is a mechanism to save money during good economic times to be used in bad economic times. The objective of the fund manager is to keep the fund as close as possible to a predetermined target. Accordingly, we consider a running co...
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| Format: | Article |
| Language: | English |
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MDPI AG
2020-11-01
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| Series: | Mathematics |
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| Online Access: | https://www.mdpi.com/2227-7390/8/11/1975 |
| _version_ | 1797548688908746752 |
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| author | Abel Cadenillas Ricardo Huamán-Aguilar |
| author_facet | Abel Cadenillas Ricardo Huamán-Aguilar |
| author_sort | Abel Cadenillas |
| collection | DOAJ |
| description | We study the optimal control of a government stabilization fund, which is a mechanism to save money during good economic times to be used in bad economic times. The objective of the fund manager is to keep the fund as close as possible to a predetermined target. Accordingly, we consider a running cost associated with the difference between the actual fiscal fund and the fund target. The fund manager exerts control over the fund by making deposits in or withdrawals from the fund. The withdrawals are used to pay public debt or to finance government programs. We obtain, for the first time in the literature, the optimal band for the government stabilization fund. Our results are of interest to practitioners. For instance, we find that the higher the volatility, the larger the size of the optimal band. In particular, each country and state should have its own optimal fund band, in contrast to the “one-size-fits-all” approach that is often used in practice. |
| first_indexed | 2024-03-10T15:03:12Z |
| format | Article |
| id | doaj.art-8dfe02f07e3f4d8e89230061da494a14 |
| institution | Directory Open Access Journal |
| issn | 2227-7390 |
| language | English |
| last_indexed | 2024-03-10T15:03:12Z |
| publishDate | 2020-11-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Mathematics |
| spelling | doaj.art-8dfe02f07e3f4d8e89230061da494a142023-11-20T20:00:11ZengMDPI AGMathematics2227-73902020-11-01811197510.3390/math8111975The Optimal Control of Government Stabilization FundsAbel Cadenillas0Ricardo Huamán-Aguilar1Department of Mathematical and Statistical Sciences, University of Alberta, Central Academic Building 639, Edmonton, AB T6G 2G1, CanadaDepartment of Economics, Pontificia Universidad Católica del Perú, Av. Universitaria 1801, San Miguel, Lima 32, PeruWe study the optimal control of a government stabilization fund, which is a mechanism to save money during good economic times to be used in bad economic times. The objective of the fund manager is to keep the fund as close as possible to a predetermined target. Accordingly, we consider a running cost associated with the difference between the actual fiscal fund and the fund target. The fund manager exerts control over the fund by making deposits in or withdrawals from the fund. The withdrawals are used to pay public debt or to finance government programs. We obtain, for the first time in the literature, the optimal band for the government stabilization fund. Our results are of interest to practitioners. For instance, we find that the higher the volatility, the larger the size of the optimal band. In particular, each country and state should have its own optimal fund band, in contrast to the “one-size-fits-all” approach that is often used in practice.https://www.mdpi.com/2227-7390/8/11/1975singular stochastic controlstochastic optimizationoptimal government stabilization fundmacrofinancequantitative risk management |
| spellingShingle | Abel Cadenillas Ricardo Huamán-Aguilar The Optimal Control of Government Stabilization Funds Mathematics singular stochastic control stochastic optimization optimal government stabilization fund macrofinance quantitative risk management |
| title | The Optimal Control of Government Stabilization Funds |
| title_full | The Optimal Control of Government Stabilization Funds |
| title_fullStr | The Optimal Control of Government Stabilization Funds |
| title_full_unstemmed | The Optimal Control of Government Stabilization Funds |
| title_short | The Optimal Control of Government Stabilization Funds |
| title_sort | optimal control of government stabilization funds |
| topic | singular stochastic control stochastic optimization optimal government stabilization fund macrofinance quantitative risk management |
| url | https://www.mdpi.com/2227-7390/8/11/1975 |
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