Adjustment time and optimal control of neoclassical monetary growth models

Abstract

The problem of adjustment time in neoclassical monetary growth models is examined. Comparisons are made with the neoclassical growth model without money. Discretionary monetary and fiscal policies of a ‘bang-bang’ type based upon Pontryagin's minimum principle and the ‘minimum-time’ problem are derived by computer simulation since the models are non-linear and except in trivial cases cannot be solved analytically. The effectiveness of policies in reducing adjustment time between equilibria is explored. These policies provide for increased confidence in the relevance of comparative static predictions derived from the type of models studied.