I have succesfully implemented optimal policy to my DSGE model using the ramsey_policy command. The model features unemployment and the instrument of the planner is a labour income tax. In some occasions, unemployment can turn negative (depending on the shock size), which of course does not make so much sense. Otherwise and under non-optimal policy, the model behaves well. I now tried the command-block
’ramsey_constraints’ to avoid negative values, which I used as follows:
utot > 0;
utot denotes unemployment. The inclusion of this block, however, does not seem to change anything. I can still obtain negative values for utot.
Is it important at which position in the code I include the block? Right now I have it directly before ramsey_policy(…);
Is there anything else I need to consider when using ramsey_constraints?
Out of curiosity for a better understanding: What is the technical background of this command? Does it include kind of an occasionally binding constraint to the model block?
Many thanks for your help!