"product of two variables" type welfare loss function

[sleep_too_much]

Dear all,

Please provide me an insight on dynare coding problem. I'm doing an optimal fiscal and monetary policy thing with Ramsey policy problem, and my welfare loss function seems a linear quadratic but includes one term that is represented as a product of two different variables, such as a product of output gap and government spending gap, like "y*g". In simple dynare code for optimal policy rule in general case, we can simply use osr_params, but if i put the special case, like "y*g" the dynare doesn't work well. I know in "optim_weights" term every variables should be put as non quadratic term, but I still don't know how to input "y*g" type quadratic term in the dynare code.

Thanks!

[MichelJuillard]

The specification of the loss function is done with osr_weights and not osr_params.

If you want to include cross products, you should write something like

Code: Select all

optim_weights;
inflation 1;
y 1;
inflation, y 0.1;
end;


Best,

Michel

[sleep_too_much]

I really appreciate for your help, Michel.