David Hudgins

Euro Area Monetary and Fiscal Policy Tracking Design in the Time-Frequency Domain

This paper first applies the MODWT (Maximal Overlap Discrete Wavelet Transform) to Euro Area quarterly GDP data from 1995 – 2014 to obtain the underlying cyclical structure of the GDP components. We then design optimal fiscal and monetary policy within a large state-space LQ-tracking wavelet decomposition model. Our study builds a MATLAB program that simulates optimal policy thrusts at each frequency range where: (1) both fiscal and monetary policy are emphasized, (2) only fiscal policy is relatively active, and (3) when only monetary policy is relatively active. The results show that the monetary authorities should utilize a strategy that influences the short-term market interest rate to undulate based on the cyclical wavelet decomposition in order to compute the optimal timing and levels for the aggregate interest rate adjustments. We also find that modest emphasis on active interest rate movements can alleviate much of the volatility in optimal government spending, while rendering similarly favorable levels of aggregate consumption and investment. This research is the first to construct joint fiscal and monetary policies in an applied optimal control model based on the short and long cyclical lag structures obtained from wavelet analysis.

Dynamic Labor Scheduling in Japan: Underemployment Reduction and Karoshi Avoidance Through Optimal Tracking Control

Abstract This study uses an optimal tracking control framework to design a dynamic labor schedule that determines the optimal balance between labor, leisure, and consumption. The analysis generates proactive policy rules through deterministic, stochastic, robust, and compromise specifications of a Linear-Quadratic tracking model. Our model allows workers to optimally transition away from karoshi overwork and away from underemployment. Our study provides guidance for labor scheduling by quantitatively addressing the conflicts between health, work-life balance (WLB), and productivity. In Japan, this approach can be utilized by discussion bases and WLB initiatives, whereas the previous regulatory proposals for karoshi relief have created adversarial relationships that have not merged firm objectives with worker motives.