Application of Optimal Control and Genetic Algorithms in Targeting Inflation Commensurate with Economic Growth in 4th Plan

Elahi, Naser; Honardoust, Atieh

doi:10.22059/jte.2013.50579

Application of Optimal Control and Genetic Algorithms in Targeting Inflation Commensurate with Economic Growth in 4th Plan

Document Type : Research Paper

Authors

Naser Elahi ¹

Atieh Honardoust ²

¹ Assistant Professor Economics, Mofid University, Iran

² MA Economics, Mofid University, Iran

10.22059/jte.2013.50579

Abstract

One of the most important variables in each country which attracts the attention of policymakers is inflation. In the inflation targeted system, it is important to target the low and stable inflation clearly and directly as the main policy. On the other hand the stability of prices which is an important result of targeted inflation is a necessary condition to achieve sustainable levels of economic growth. On this ground we are going to study the targeted inflation proportional to economic growth during the Fourth Economic Plan by applying optimal control method. The objective function here is the social loss function which will be minimized through genetic algorithms in the form of binding function of GA. The constraint of the function will be estimated by econometric of Seemingly Unrelated Regressions. To measure the impact of control variables on variables of situation we plan different scenarios. As a result we will see that during the 4th Development Plan tools of monetary policy are more influential than the tools of financial policy.

Keywords

Inflation Targeting

economic growth

Optimal control

Genetic Algorithm

social loss function