This paper examines the issue of nonlinear observers. It develops a nonlinear observer and uses this to develop control policies for a low-order economic model. One of the motivations for the nonlinear observer is to learn expectations variables,another is to allow for policy makers who only have local knowledge of the model, but can learn. The particular nonlinear observer developed in this paper allows for the use of linear control techniques, and the paper reports results of simulationexperiments on the control of a macroeconomic model using the nonlinear observer.
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