Economic Models - Convex Optimization

Time Varying Responses 59
the time series analysis was utilized (Mayer, 1972). Several authors since
then have used varying parameter regression analysis (Cooley and Prescott,
1973; Farley et al., 1975). In the above analysis, adaptive control system
was used in a state-space model where the reduced form parameters can
move over time.
However, variations over time are slow which indicates any absence
of explosive response (Das and Cristi, 1990; Tsakalis and Ioannou, 1990).
Cargil and Mayer (1978) also have observed stable movements of the coefficients.
Thus the role of the monetary-fiscal policies on the economy is not
unsystematic, although it can vary over time.
Results obtained by other researchers showed that the effects of
monetary and fiscal policy change over time, and it is important to analyze
these changes in order to obtain time-consistent monetary-fiscal policy (De
Castro, 2006; Folster and Henrekson, 2001; Muscatelli and Tirelli, 2005).
The results obtained by using adaptive control method, showed similar
characteristics of the monetary-fiscal policy.
The implication for the public policy is quite obvious. Time-consistent
monetary-fiscal policy demands continuous revision, otherwise, the effectiveness
of the policy may deteriorate and as a result, the effects of monetary
and fiscal policy on major target variables of the economy may deviate from
their desired level. Our approach is a systematic way forward to analyze
these dynamics of monetary and fiscal policy.
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