Receding horizon control of jump linear systems and a macroeconomic policy problem

We study a time-variant macroeconomic model in which some of the parameters are allowed to fluctuate in an exogenous form, according to a Markov chain. This feature allows us to model abrupt changes for improvement and degradation in terms of the intrinsic relations of the economic variables, and account for changes in the policymaker's preferences. Receding horizon control is well suited to systems with a modelled parameter fluctuation in the short and medium terms, but with unmodelled uncertainties in the long run. The problem features a partial information structure, since the changes in the economy may not be accessible, and to seek a computable solution we restrict attention to the class of linear feedback controls. (C) 1999 Elsevier Science B.V. All rights reserved. JEL classification: C30; C61; C73; E10; E60.