A Control Theory Approach to Analysis of Economic Policy for a Developing Country
Control Theory is applied to the economy of a developing country to determine the best ways to achieve a set of economic policy objectives as indexed by a criterion function when the performance is judged over many years and when the dynamic behaviour of the system is subject to a set of constraints. Economic policy instruments are constrained and boundary conditions imposed to ensure that the solution path is reasonable. Control Theory does not only provide normative prescriptions to economic policy issues, but also serves as an important supplementary tool in the realm of economic forecasting. A priori knowledge of the various political, bureaucratic and administrative influences could provide the policy adviser with a vivid picture of the pressures that could muddy the waters for policy-makers in developing countries and which could shape priorities of economic policy.
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THE ECONOMETRIC MODEL
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1.00 cedi increase agricultural algorithm Alternative balance of trade cocoa cocoa production constraints consumption per capita control theory devaluation domestic price level dynamic multipliers dynamic programming econometric model economic growth economic policy instruments economic policy package equation exchange rate incentive exogenous variables expected to impact exports food imports food production fuel imports GDP per capita Ghana economy Ghanaian Gold Coast government spending higher Holbrook imports per capita income distribution inflation rate instrument variables investment in productivity linear loss function maximum principle metric tons million cedis money supply multiplier effect nonlinear number of turning objective function Observed and Predicted optimal control optimal policy output percent increase percent level planning horizon points which occurred policymaker portrayed in Table production incentive production per capita real GDP relative respecification RMSE sector simulation target variables targets and instruments taxes Theil Inequality Coefficient timber total number trade-offs turning points predicted unemployment whilst