Dear all,
I am calculating an OSR in a small scale equilirium economy, which is a little like a traditional New Keynesian model that policy maker control taylor rule to minimize welfare loss from output and inflation. However, my result is that OSR is consistent with strict inflation targeting policy, which means the minimization problem has corner solution. I feel confused whether corner solution is common in OSR problem, or what error I make when calculating.
Thank you for your help and discussion very much!
OSR_model.pdf (92.9 KB)
OSR_code.mod (3.1 KB)
Yes, it is rather common for corner solutions to occur. That’s why many papers use a bounded parameter space.