NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Dynamic Optimization in Two-Party Models

Warwick J. McKibbin, Nouriel Roubini, Jeffrey Sachs

NBER Working Paper No. 2213
Issued in April 1987
NBER Program(s):   EFG

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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Document Object Identifier (DOI): 10.3386/w2213

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