Hello all,

I’ve been running a ramsey policy program where the planner objective is a quadratic loss function of the central bank. The aim is to collect the pairs of variances of inflation and output for each value of the policy’s preference parameter (lambda) in order to draw the taylor efficience curve.

The program run, but what seems weird is that whenever I change the value of the policy preference in the planner objective function (lambda lies from 0:0.5:1) I still get the same values for the inflation and output variances and the same reaction function (optimal policy).

Secondly, when I tried to run the model with lambda=10.00, the program run and give the same results. which possible value the parameter lambda does lie according to my planner objective function?

What can I do to get variances and the policy function which change to each value of lambda.

I’m using dynare 4.1.

thanks for your help !

Here is my code :

close all

%----------------------------------------------------------------

% 1. Defining variables

%----------------------------------------------------------------

var x inflation R;

varexo eps_x eps_infl eps_R;

parameters beta lambda delta alpha phi kappa rho_infl rho_x;

% sigma_eps_x sigma_eps_infl sigma_eps_R;

%----------------------------------------------------------------

% 2. Calibration

%----------------------------------------------------------------

beta = 0.99;

delta = 0.492;

alpha = 0.60;

phi = 0.019;

kappa = 0.021;

rho_infl = 1.519;

rho_x = 0.633;

%sigma_eps_x = sqrt(0.21);

%sigma_eps_infl = sqrt(1.16);

%sigma_eps_R = sqrt(0.24);

lambda = 0.50;

%----------------------------------------------------------------

% 3. Model

%----------------------------------------------------------------

model (linear);

x = (1-delta)*x(-1)+ (1-delta) x(+1)-phi(R-inflation(+1))+eps_x;
inflation = (1-alpha)inflation(-1)+ alphainflation(+1)+kappa*x+eps_infl;

R = rho_infl

*inflation+rho_x*x+eps_R;

end;

%----------------------------------------------------------------

% 4. Defining chocs

%----------------------------------------------------------------

shocks;

var eps_x; stderr 0.366;

var eps_infl; stderr 0.384;

var eps_R; stderr 5.814;

end;

planner_objective (1-lambda)*inflation^2 + lambda*x^2;

ramsey_policy(planner_discount=0.99);