Description

Linear Quadratic Riccati Equations are solved as a General
Nonlinear Programming Problem instead of the usual Matrix
Recursion.

Small Model of Type : NLP

Category : GAMS Model library

Main file : abel.gms

$title Linear Quadratic Control Problem (ABEL,SEQ=64)

$onText
Linear Quadratic Riccati Equations are solved as a General
Nonlinear Programming Problem instead of the usual Matrix
Recursion.


Kendrick, D, Caution and Probing in a Macroeconomic Model. Journal of
Economic Dynamics and Control 4, 2 (1982).

Keywords: nonlinear programming, Riccati equations, macro economics, fiscal policy
$offText

Set
   n     'states'   / consumpt, invest  /
   m     'controls' / gov-expend, money /
   k     'horizon'  / 1964-i, 1964-ii, 1964-iii, 1964-iv
                      1965-i, 1965-ii, 1965-iii, 1965-iv /
   ku(k) 'control horizon'
   ki(k) 'initial period'
   kt(k) 'terminal period';

Alias (n,np), (m,mp);

ku(k) = yes$(ord(k) < card(k));
ki(k) = yes$(ord(k) = 1);
kt(k) = not ku(k);
display k, ki, kt, ku;

Table a(n,np)  'state vector matrix'
                consumpt  invest
   consumpt        .914    -.016
   invest          .097     .424;

Table b(n,m)   'control vector matrix'
                gov-expend  money
   consumpt           .305   .424
   invest            -.101  1.459;

Table wk(n,np) 'penalty matrix for states - input'
                consumpt  invest
   consumpt        .0625
   invest                      1;

Table lambda(m,mp) 'penalty matrix for controls'
                gov-expend  money
   gov-expend            1
   money                     .444;

Parameter
   c(n)        'constant term'      / consumpt -59.4,   invest -184.7 /
   xinit(n)    'initial value'      / consumpt 387.9,   invest   85.3 /
   uinit(m)    'initial controls'   / gov-expend 110.5, money   147.1 /
   xtilde(n,k) 'desired path for x'
   utilde(m,k) 'desired path for u'
   w(n,np,k)   'penalty matrix on states';

w(n,np,ku)  = wk(n,np);
w(n,np,kt)  = 100*wk(n,np);
xtilde(n,k) = xinit(n)*1.0075**(ord(k) - 1);
utilde(m,k) = uinit(m)*1.0075**(ord(k) - 1);

display w, xtilde, utilde;

Variable
   x(n,k) 'state variable'
   u(m,k) 'control variable'
   j      'criterion';

Equation
   criterion   'criterion definition'
   stateq(n,k) 'state equation';

criterion..
   j =e= .5*sum((k,n,np),  (x(n,k)  - xtilde(n,k))*w(n,np,k)*(x(np,k) - xtilde(np,k)))
      +  .5*sum((ku,m,mp), (u(m,ku) - utilde(m,ku))*lambda(m,mp)*(u(mp,ku) - utilde(mp,ku)));

stateq(n,k+1)..
   x(n,k+1) =e= sum(np, a(n,np)*x(np,k)) + sum(m, b(n,m)*u(m,k)) + c(n);

Model abel / all /;

x.l(n,k)   = xinit(n);
u.l(m,k)   = uinit(m);
x.fx(n,ki) = xinit(n);

solve abel minimizing j using nlp;

display x.l, u.l;