Policy modification for macro-economic systems resulting in reduced sensitivity to parameter perturbations

This paper describes application of a recent result in control system sensitivity reduction to economic policy modification for macroeconomic systems. A two-sector Phillips multiplier model is used as an example. By an appropriate reapportionment of non-feedback and feedback terms in the government policies in each sector, it is shown that the sensitivity with respect to model parameter variations of national income is reduced. This reduction is accomplished without changing the values of the sector state variables of the macroeconomic system when the parameters have nominal values. When the original policy leads to an optimal system, so does the modified policy. Furthermore, the modified policy always leads to a stable economy.