I would like to replicate the paper of Angelini et al (2014) who explore the interaction between capital requirements and monetary policy. Their model is based on that of Gerali et al (2010), which features monopolistic competition in the banking sector, borrowing constraint and capital regulations. In deriving optimal policy parameters, Angelini et al (2014) consider two cases: (1) cooperative case where the two authorities jointly implement their policy rules to minimize a ‘common’ loss function (2) non-cooperative case where each authority minimizes her own loss function, taking other’s policy rule as given.
I guess it should be straightforward to solve for optimal parameters for case (1) using command OSR, since there is ‘common’ loss function. However, I am curious on how to solve for optimal parameters for case (2) when there are two instruments and two different objectives. Can OSR command still be useful?
Thank you in advance for any responses.