Fiscal stimulus as an optimal control problem

DOI10.1016/J.SPA.2021.05.009MaRDI QIDQ2145819zbMATH OpenOpenAlexFDO

Authors Philip Ernst, Michael B. Imerman, Larry Shepp, Quan Zhou

Publication date 20 June 2022

Published in Stochastic Processes and their Applications (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1410.6084

zbMATH Keywords

Hamilton-Jacobi-Bellman equationstochastic controldividend problemfiscal stimulusfinancial strategyRadner-Shepp model

Mathematics Subject Classification ID

Macroeconomic theory (monetary models, models of taxation) (91B64) Optimal stochastic control (93E20)

Abstract: During the Great Recession, Democrats in the United States argued that government spending could be utilized to "grease the wheels" of the economy in order to create wealth and to increase employment; Republicans, on the other hand, contended that government spending is wasteful and discouraged investment, thereby increasing unemployment. Today, in 2020, we find ourselves in the midst of another crisis where government spending and fiscal stimulus is again being considered as a solution. In the present paper, we address this question by formulating an optimal control problem generalizing the model of Radner & Shepp (1996). The model allows for the company to borrow continuously from the government. We prove that there exists an optimal strategy; rigorous verification proofs for its optimality are provided. We proceed to prove that government loans increase the expected net value of a company. We also examine the consequences of different profit-taking behaviors among firms who receive fiscal stimulus.

Recommendations

• Optimal public expenditure with inefficient unemployment
• A stochastic control approach to public debt management
• Explicit formula for the optimal government debt ceiling
• Optimal government spending with labor market frictions
• Optimal choice of fiscal policy instruments in a stochastic IS-LM model

Cites work

• A Diffusion Model for Optimal Dividend Distribution for a Company with Constraints on Risk Control
• Controlled diffusion models for optimal dividend pay-out
• Controlling risk exposure and dividends payout schemes: Insurance company example
• Formulas for stopped diffusion processes with stopping times based on the maximum
• On capital injections and dividends with tax in a diffusion approximation
• On stochastic differential equations for multi-dimensional diffusion processes with boundary conditions
• Optimal Consumption for General Diffusions with Absorbing and Reflecting Barriers
• Optimal Dividend Payments and Reinvestments of Diffusion Processes with Both Fixed and Proportional Costs
• Optimal Financing of a Corporation Subject To Random Returns
• Optimal capital injection and dividend distribution for growth restricted diffusion models with bankruptcy
• Optimal control of the insurance company with proportional reinsurance policy under solvency constraints
• Optimal dividend and capital injection problem in the dual model with proportional and fixed transaction costs
• Optimal dividend and issuance of equity policies in the presence of proportional costs
• Optimal dividend payouts for diffusions with solvency constraints
• Optimal dividend policy and growth option
• Optimal dividend strategies in a Cramér-Lundberg model with capital injections
• Optimal dividend-financing strategies in a dual risk model with time-inconsistent preferences
• Optimal dividends and capital injection under dividend restrictions
• Optimal financing and dividend control of the insurance company with proportional reinsurance policy
• Optimal risk and dividend control for a company with a debt liability
• Optimal risk and dividend distribution control models for an insurance company
• Optimal risk control and dividend distribution policies. Example of excess-of loss reinsurance for an insurance corporation
• Optimality results for dividend problems in insurance
• Optimization of the flow of dividends
• Profit Maximization and the Market Selection Hypothesis
• Risk vs. profit potential:
• Stochastic differential equations with reflecting boundary condition in convex regions
• Strategies for dividend distribution: a review
• The First Passage Problem for a Continuous Markov Process
• The dividend problem with a finite horizon

Cited in

(4)

• A fiscal stimulus with deep habits and optimal monetary policy
• scientific article; zbMATH DE number 4164515 (Why is no real title available?)
• Keynesian resurgence: financial stimulus and contingent claims modelling
• scientific article; zbMATH DE number 1086766 (Why is no real title available?)

This page was built for publication: Fiscal stimulus as an optimal control problem

Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q2145819)