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Optimal Control of the Money Supply

Working Paper 200 | Published May 1, 1982

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Author

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Robert B. Litterman

Optimal Control of the Money Supply

Abstract

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.