The Optimal Rule of Monetary Policy Using the Theory of Optimal Control: Stable Equilibrium of Money

Document Type : Original Article

Author
Noorollah Salehi Asfiji
Assistant Professor, Department of Economics, Shahid Bahonar University of Kerman, Kerman, Iran
10.22034/jmek.2023.384670.1070
Abstract
In recent years, a large number of researchers seek to understand the real motives of policymakers in response to economic development. Their evidence is that monetary policy follows a systematic process that is guided through the preferences of monetary authorities in order to achieve certain goals. The purpose of this study is to determine the stable state of the optimal monetary policy rule, using the method Optimal control for all generations. To achieve this, measuring money in optimal control theory is very important and vital. The exact output of this measurement is the removal of inflation from the economy for all generations. Money measurement in economics is fundamentally different from other measurements, such as production, employment, consumption, etc. It is that money is a warehouse variable. A storage variable does not have a time dimension. While the flow variable has a time dimension. In other words, the concept of running must be defined at every moment of time. If the warehouse variable, it must be measured at a moment in time. In other words, it is measured for a moment of time, for all times. The fundamental difference between storage and delivery is in the measurement unit. The unit of measurement is defined over time (unit in time). The warehouse measurement unit is empty of time. As a result, it is not defined for growth or derivative storage variables. In other words, money growth is meaningless. Or changes in the amount of money are meaningless. Rather, the level is defined for the warehouse variable. In mathematical language, for the accumulation variable, the integral is defined, not the derivative or the variation. That is, the derivative of money is always zero. In mathematics, integral (in French: Integral) is a method of assigning numbers to functions. That is, in economics, money is the integral of value, not the derivative of value. What causes money to flow in the exchange process in economics is the speed of money circulation. But money itself is a warehouse. It is important to distinguish between money and the velocity of money. In other words, the definition of the equation of motion for money is wrong. But for the speed of money circulation, the equation of motion is defined. That is, the control variable is not money, but the speed of money circulation is the control variable. So that with the increase in the speed of money circulation, the economic growth increases. As a result, the balance of money is static for all generations. If the balance of the speed of money circulation is dynamic. As a result, Yule's optimal policy rule is as follows: the formation of a public source of money over time for all generations, so that the ownership of this public resource is public. As a result, the act of providing money from this source for all generations is in the form of a loan agreement. In other words, in the theory of optimal control, the public source of money has the role of controller of the economic system. That is, inflation control is only possible through public resources for all generations. In this case, the macroeconomic balance is a stable balance for all generations. Because the balance of money over time is a static balance. Because money has no time value. Because money has no time. As a result, when money is first credited to the exchange process in economics, it exists forever in the exchange process. That is, the lifetime of money is infinite. In other words, there is no need to create money. That is, the growth of liquidity over time is zero.

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Management, Economics and Entrepreneurship Studies
Volume 3, Issue 4
Winter 2023
Pages 25-45

  • Receive Date 24 June 2022
  • Revise Date 29 September 2022
  • Accept Date 03 November 2023