| Article ID: | iaor20011853 |
| Country: | United States |
| Volume: | 36 |
| Issue: | 3 |
| Start Page Number: | 1099 |
| End Page Number: | 1132 |
| Publication Date: | May 1998 |
| Journal: | SIAM Journal on Control and Optimization |
| Authors: | Haussmann U.G., Chiarolla M.B. |
| Keywords: | inflation |
This paper models the action of the central bank on the dynamics of the nominal interest rate with the aim of controlling inflation. The problem is set up as a two-dimensional bounded variation control problem; it is shown that its variational formulation leads to a stochastic differential game with stopping times between the conservative and the expansionist tendencies of the bank.