Levin's Ramsey Policy Code under two policy variables


Under lump-sum taxes, Levin’s code requires specifying an arbitray Monetary Policy rule (since we have N-1 private sector equations for N variables). However, when revenue is financed either by distortionary taxes or government debt, we need to introduce the government budget explicitly and so we have N equations for N+2 variables. Can we introduce two arbitrary policy rules in this case: one for monetary and the other for fiscal policy? Basically, I would like to know whether Levin’s code works when there are more than one policy variable. And if the answer is yes then how to provide a fiscal rule (because for monetary policy there are standard practices like Taylor rules)?

It would be great if someone kindly sheds some light into this issue.


Subrata Sarker
PhD Student
Department of Economics
University of British Columbia, Vancouver