Optimal Control of the Money Supply

72 Pages Posted: 19 Jun 2004 Last revised: 31 Dec 2022

Date Written: June 1982


Using optimal control theory and a vector autoregressive representation of the relationship between money and interest rates, one can derive a feedback control procedure which defines the best possible tradeoff between interest rate volatility and money supply fluctuations and which could be used to reduce both from their current levels.

Suggested Citation

Litterman, Robert, Optimal Control of the Money Supply (June 1982). NBER Working Paper No. w0912, Available at SSRN: https://ssrn.com/abstract=299790

Robert Litterman (Contact Author)

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