Linear-quadratic approach with welfare loss function

DavRie87 · June 28, 2020, 1:16am

Dear Dynare users,

I’ve got a question regarding a welfare-analysis. I derived a model with log-linear relations around the efficient steady state and got an quadratic welfare loss function with inflation and output-gap in quadratic terms.

Is it possible in Dynare to implement the log-linear model and also to insert the Loss-Function with the quadratic terms for the relevant variables? How would the code look like?

Thanks in advance and wish you all have a nice weekend.

Best regards

alisa · June 28, 2020, 11:03am

Hi, I suggest you to look at:

github.com

JohannesPfeifer/DSGE_mod/blob/master/Gali_2015/Gali_2015_chapter_4.mod

/*
 * This file performs welfare analysis of Chapter 4.4 on simple rules in the baseline New Keynesian model
 * of Jordi Gali (2015): Monetary Policy, Inflation, and the Business Cycle, Princeton University Press, Second Edition.
 * It replicates Table 4.1 and 4.2.
 *
 * THIS MOD-FILE REQUIRES DYNARE 4.5 OR HIGHER
 *
 * Notes:
 * - all model variables are expressed in deviations from steady state, i.e. in contrast to
 *      to the chapter, both the nominal interest rate and natural output are not in log-levels, but rather mean 0
 *
 * - For the constant money growth rate rule (Table 4.2), there are small numerical differences.
 *
 * This implementation is based on the code by Dmitry Matveev and Johannes Pfeifer. In case you spot mistakes,
 * email us at matveev@uni-mannheim.de of jpfeifer@gmx.de.
 *
 * Please note that the following copyright notice only applies to this Dynare 
 * implementation of the model.
 */

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