Optimal Policy

Dynare can compute Ramsey policy and optimal simple rules

Ramsey policy

computes the first order approximation of the policy that maximizes the policy maker objective function submitted to the constraints provided by the equilibrium path of the economy.

Ramsey policy replaces OLR in Dynare version 3:

Example:

var y inflation r;
varexo y_ inf_;

parameters delta sigma alpha kappa gammarr gammax0 gammac0 rbar lambda1 lambda2;

delta =  0.44;
kappa =  0.18;
alpha =  0.48;
sigma = -0.06;
lambda1 = 0.5;
lambda2 = 0.1;

model(linear);
y  = delta * y(-1) + (1-delta) * y(+1) + sigma *(r - inflation(+1)) + y_; 
inflation  =   alpha * inflation(-1) + (1-alpha) * inflation(+1) + kappa*y + inf_;
end;

shocks;
var y_;
stderr 0.63;
var inf_;
stderr 0.4;
end;

planner_objective inflation^2 + lambda1*y^2 + lambda2*r^2;

ramsey_policy(planner_discount=0.95);

Notes:

Optimal simple rule

With optimal simple rule (OSR), Dynare searches numerically the best value for the coefficients of some prespecifed policy rule.

Example:

var y inflation r;
varexo y_ inf_;

parameters delta sigma alpha kappa gammarr gammax0 gammac0 gamma_y_ gamma_inf_;

delta =  0.44;
kappa =  0.18;
alpha =  0.48;
sigma = -0.06;


model(linear);
y  = delta * y(-1)  + (1-delta)*y(+1)+sigma *(r - inflation(+1)) + y_; 
inflation  =   alpha * inflation(-1) + (1-alpha) * inflation(+1) + kappa*y + inf_;
r = gammax0*y(-1)+gammac0*inflation(-1)+gamma_y_*y_+gamma_inf_*inf_;
end;

shocks;
var y_;
stderr 0.63;
var inf_;
stderr 0.4;
end;


optim_weights;
inflation 1;
y 1;
end;

osr_params gammax0 gammac0 gamma_y_ gamma_inf_;

gammarr = 0;
gammax0 = 0.2;
gammac0 = 1.5;
gamma_y_ = 8;
gamma_inf_ = 3;

osr;

Notes:

   gammarr = 0;
   gammax0 = 0.2;
   gammac0 = 1.5;
   gamma_y_ = 8;
   gamma_inf_ = 3;

Warning

Don't call your files osr.mod or osr1.mod because it conflicts with internal Dynare names.

DynareWiki: OptimalPolicy (last edited 2010-11-29 10:37:06 by SébastienVillemot)