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To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jedc.2005.09.013 Byline: Ronald J. Balvers, Douglas W. Mitchell Abstract: In linear-quadratic control (LQC) problems with singularities in the control cost and/or the transition matrices, we derive a reduction of the dimension of the Riccati matrix, simplifying iteration and solution. Employing a novel transformation, we show that, under a certain rank condition, the matrix of optimal feedback coefficients is linear in the reduced Riccati matrix. For a substantive class of problems, our technique permits scalar iteration, leading to simple analytical solution. Author Affiliation: Department of Economics, P.O. Box 6025, West Virginia University, Morgantown, WV 26506-6025, USA Article History: Received 19 July 2003; Accepted 1 September 2005

The process of implementing risk value models in production management decision making is discussed.

Bar-Shira and Finkelshtain have established the validity of mean-standard deviation analysis under any utility-representable preferences. The statement of one of their indifference curve properties has been corrected.

Portfolio management decision making is analyzed and evaluated.

The Riccati equation relating to discrete optimal control is analytically solved, and this solution has applications for economic problems with two targets, as well as wider application.

This article offers a series of contexts where comparative mean-seeking behavior becomes predictable. Arrow-Pratt levels of risk aversion, microeconomics of choice, and portfolio features are discussed.

A study was conducted to explain the relationship between output supply and price level in fluctuations in aggregate demand and supply. A linear model was used to analyze the output fluctuations resulting from the negative correlation between price level and output. The zero covariance that resulted between demand and supply shocks indicate that macroeconomic theories based on price level and output correlation should be examined with care.

It is proven here that with elliptically symmetric returns and two risky assets, a diversifier who is more risk averse in the Arrow-Pratt or Ross sense will hold more of the second-order stochastically dominated asset. Thus, consider any concept of 'strictly more risk averse' implying greater Arrow-Pratt aversion, and consider a conjecture that if agent A is strictly more risk averse than agent B then A must hold more of the second-order stochastically dominating asset (in diversified two-asset portfolios). This paper shows by counterexample that the conjecture is false. (Reprinted by permission of the publisher.)

The normative question of obtaining computationally convenient optimal intertemporal portfolios with realistic assumptions is investigated. Expected utility of final-period wealth is maximized for each period although possible subjection to linear inequality constraints is maintained. Random net portfolio additions and deterministic evolution of return distributions are allowed. The portfolio problem is shown to be computationally straightforward under certain assumptions.

Chaotic monetary policy is discussed through a macroeconomic model characterized by insufficient information and nonlinearity. Results indicate that chaos in the money supply affects trends in prices, nominal interest rate and inflation. However, real variables such as real interest rate and aggregate output do not exhibit any responding effect. In another vein, the shaping of a rational expectation function in a dynamic model with an existing chaos variable is seen to be difficult.