questions about Ramsey optimal policy

[sahar.bashiri01]

Dear all,

I have some questions about Ramsey optimal policy.

My model is a standard model with habit formation consumption. It works fine if I put Taylor rule as the monetary policy rule. But there's a problem when I try to get the results under Ramsey optimal policy. The planner objective is a function of consumption expenditure and labour hours which I wrote it s follows:

planner_objective log(c-h*c)-psi*(((wl^(lambdaw*(1+v)/(1-lambdaw)))*(w_star^(lambdaw*(1+v)/(1-lambdaw)))*(l_star^(1+v)))/(1+v));
ramsey_policy(planner_discount=0.9976,order = 1,instruments=(r));
eliminare_lagrange_multipliers;

When I try to run the code, Dynare returns the following error message:

Error using dynare_solve (line 60)
An element of the Jacobian is not finite or NaN
Error in evaluate_steady_state (line 66)
[ys,check] = dynare_solve([M.fname '_static'],...
Error in steady_ (line 54)
[steady_state,params,info] =
evaluate_steady_state(oo_.steady_state,M_,options_,oo_,~options_.steadystate.nocheck);
Error in steady (line 81)
[steady_state,M_.params,info] = steady_(M_,options_,oo_);
Error in Ikeda_main10_ramsey (line 822)
steady;
Error in dynare (line 180)
evalin('base',fname) ;

I need help to solve the errors. Any help would be much appreciated!

Best Regards,
Sahar Bashiri

[jpfeifer]

You are most probably going to need a steady state file for this exercise that provides the analytical steady state values conditional on the value of the instrument.

[sahar.bashiri01]

Dear Professor,

Thank you very much for your help in advance.

I check the steady state values. The code works fine after eliminating some shocks. I have another questions, too.
Is writing the planner objective with habit persistence in consumption as follows correct?

planner_objective log(c-h*c)-psi*(((wl^(lambdaw*(1+v)/(1-lambdaw)))*(w_star^(lambdaw*(1+v)/(1-lambdaw)))*(l_star^(1+v)))/(1+v));

Best regards,
Sahar Bashiri

[jpfeifer]

No, you are missing the lagged consumption term. To deal with this, define a new variable

Code: Select all

c_lag=c(-1)

and define the part of the planner objective as

Code: Select all

planner_objective log(c-h*c_lag)

[sahar.bashiri01]

I regard your reply for my questions. I would like to express my deepest appreciation for your help. .


Best regards,
Sahar Bashiri