Control theory methods in economics have historically developed over
three phases. The first involved basically the feedback control rules in
a deterministic framework which were applied in macrodynamic models for
analyzing stabilization policies. The second phase raised the issues of
various types of inconsistencies in deterministic optimal control models
due to changing information and other aspects of stochasticity. Rational
expectations models have been extensively used in this plan to resolve
some of the inconsistency problems. The third phase has recently focused
on the various aspects of adaptive control. where stochasticity and
information- adaptivity are introduced in diverse ways e.g .- risk
adjustment and risk sensitivity of optimal control, recursive updating
rules via Kalman filtering and weighted recursive least squares and
variable structure control methods in nonlinear framework. Problems of
efficient econometric estimation of optimal control models have now
acquired significant importance. This monograph provides an integrated
view of control theory methods, synthesizing the three phases from
feedback control to stochastic control and from stochastic control to
adaptive control. Aspects of econometric estimation are strongly
emphasized here, since these are very important in empirical
applications in economics.
