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Warwick J. McKibbin, Nouriel Roubini, Jeffrey Sachs
NBER Working Paper No. 2213
Issued in April 1987
NBER Program(s): EFG
---- Abstract -----
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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