Issue with Debt in Ramsey policy

Dear all,

I need some clarification to better understand how the Ramsey routine works. I’m solving a Ramsey planner problem involving debt accumulation. It is well known that debt is indeterminate in this class of problems and its steady state level must be calibrated. Is it possible to find some explanation of how this problem is addressed in the Ramsey routine in Dynare? There is some problem if the level of debt depends on the instruments in steady state? I’m sorry to bother, but I didn’t find anything about it.

Thank you in advance for your help,
Have a nice evening

I haven’t tried it, but with user-defined steady state files, you should be able to fix a debt level.

Dear professor,

thank you very much for the reply. Just to clarify, with user-defined steady state you mean a recursive/analitycal steady state, am I right? I think I get what you mean but what happens if I have two instruments influencing the value of my debt? For instance, if I have two instruments both affecting the level of debt through the government budget constraint, there is any possible way to calibrate the steady state level of debt? If I find a steady state value for one instrument close to the initial value I provided for this instrument, it’s like I’m pinning down the level of the instrument itself obtaining the debt as a function of this value and the other instrument, do I understand it correctly? I was wondering if there is a way to calibrate the level of steady state debt with the latter depending on two instruments. Provided that I need a conditional steady state for the Ramsey problem in dynare, I’m thinking if there is a way to do it.

Thanks again, have a nice day.

  1. Yes, a recursive analytical steady state.
  2. I am not sure I understand the second point. You have a situation with two instruments that need to be set consistent with a debt target? So the initial value for the instruments cannot be independently chosen? If you could provide example codes, that might help.

Dear professor,

thanks again. Yes exactly, I have the debt B depending on the values of two instruments but I would like to know if there is the possibility to calibrate the steady state value of the debt and to choose the instruments consistently.

Maybe there’s something I’m missing.

Thank you in advance. Have a nice day

dynare_forum.mod (5.8 KB)