Issue with Trend Inflation Model and Ramsey Optimal Policy

Optimal Policy
1

Hi Dynare Team,

It would be great if you could help me solve the following issue (mod file attached):

I have been coding up a simple NK model with trend inflation (not log-linearised). To keep things simple, target inflation (cPi_star) is set to be an exogenous parameter. I have introduced indexation as indicated by the cgamma parameter.

Using standard stoch_simul, the model equations have residuals equal to zero and it all runs through smoothly. However, when I introduce the ramsey policy set-up to perform simple optimal policy, using R as my instrument and conditioning the steady_state_model variables on R, the model equations have non-zero residuals and the steady state cannot be computed.

I have worked through the Ramsey policy posts in the Forum and tried all sorts of alterations to make it work but I’m afraid it still doesn’t. Could you please help me fix this?

Thanks a lot.

Trend_infl_NK_model_optimal_policy.mod (6.5 KB)

2

Are you sure that your Ramsey model features a unique steady state? The problem is not with finding the steady state of the private sector equilibrium conditions, but of finding the steady state of the Lagrange multipliers. That is rather unusual and usually arises if there is not a unique optimal value for the instrument.