Maximize welfare

Dynare help (legacy posts)
1

Hi,
I am computing welfare by doing a second order approximation of the utility function (+beta U(+1)) and then taking the mean of this as the value of welfare.
Now, I want to find the values of the Taylor Rule parameters that maximize welfare. I do a loop with different values of the parameters to see which ones give the highest welfare.
I can see the mean of the welfare on the screen when I run the program, but, where are those values stored? I need to know in order to find the maximum.
Thank you very much

2

you can get the vector of mean values in oo_.mean

But be aware that welfare is inherently a state dependent concept and, in accumulation models, maximizing mean welfare will just tell you that people are better off in an economy with more capital. Maximizing mean welfare won’t take into account the transition costs associated with accumualting this larger capital stock.

Best

michel

3

Dear members,

I need to learn how to do loop, where could i learn, ı cant find enough explaination anywhere,

Thank you in advance,

4

Depends around which command you want to loop. If you want to loop around stoch_simul, follow the suggestion in [Designing probability outside the model)

5

I have a question related to Michel’s reply. How are optimal simple rules computed in dynare? I thought they were computed by starting from the Ramsey deterministic steady state of the economy and then by choosing numerically the values of the coefficients of the rules that maximise welfare under a second order approximation (that is taking into account the second moments). Am I wrong? From what you say I may think I am…

6

Optimal simple rules are different from Ramsey optimal policy. In Dynare, for OSR, the objective function is a weighted sum of the variance of endegenous variables (not necessarily welfare). The steady state of the economy is not affected by the choice of the optimal simple rule.
Dynare uses a numerical algorithm to find the optimal coefficients of the simple rule.
In general, this is not a first best optimum. A Ramsey policy would do better for the same objective function.
Ramsey policy rules imply the use of Lagrange multipliers that increase the size of the state space. Optimal Simple Rule don’t require the addition of Lagrange mutlipliers.

Best

Michel

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