Abstract

In the traditional theory of economic policy managers had a perfect knowledge of reality and could achieve a “fine tuning” in their management. But, assuming rational expectations, optimal control is impossible for managers making discretionary decisions. Thus, the theory of optimal control lost its place against the theory of games that formalized agents of strategic behavior. In this work, a synthesis is tested between the optimal control technique and the expectations of the private agents; for this, the optimal control is not exercised over monetary or fiscal variables, but over expectations, whose credibility is based on institutional transformations. The model of the inventories cycle shows an oscillation of the marginal propensity to invest. An endogenous investment is then formalized, whose propensity to invest is a function of expectations, and the technique of optimal control is applied to investment expectations. The result is the stabilization of the inventory cycle.This formalization is consistent with Keynes’s (1936) views on the desirability of stabilizing the cycle not by stopping investment in the boom but by stimulating consumption to make the boom sustainable.