Good evening everyone, I wanted to know how one computes the welfare gains and losses between two dates in a perfect foresight simulation. Should I compute the difference between the two utilities from the two dates ? Thanks! best regards

Yes indeed, my ricardian and non ricardian agents have a different level of base consumption. I get your point now. Should I normalize base consumption at my SS to 1 ? So then, I divide my consumption results for every period by the level of SS consumption ? Thanks @jpfeifer

I am not saying they need to have the same base level. All I am saying is that you need to specify/explain the concrete metric you want to employ. That may be utils or absolute or relative consumption.

I’m not sure what to answer to that. I would go for relative consumption as I’m comparing between two dates the gains @jpfeifer

So now, how do I perform that ? Just by comparing the gain of relative consumption between two dates for my two agents ? @jpfeifer

It’s more complicated as we are talking about welfare, so the path of utility matters. Usually, you do something like [image] Consumption Equivalence_Welfare analysis Optimal Policy Hi, I am trying to proceed with a welfare analysis. I have estimated the values of consum…

Thank you @jpfeifer I find it quite difficult to replicate your files as I do not compare two policies, but the gain of welfare between two dates after a shock.

That distinction does not matter and you should not use my files. Rather, it’s about the concept. You should know the level of welfare and of consumption in steady state. You also know how welfare changes between two dates. That should allow for backing out the consumption equivalent.

Thanks @jpfeifer . I think I got it. SS End of period End of period Cr 30772,1339 Cnr 27210,7542 Wr 1,988598784 1,988632544 30772,65628 consumpt eq Wnr 1,987875615 1,987883907 27210,86772 consumpt eq Here you have an example. You have consumption for the two types of househ…

The consumption equivalent would be the percentage of steady state consumption to achieve that utility level. If 30772,65628 steady state consumption would generate a welfare of 1,988632544 as at the end of the period, then you would have a consumption equivalent of (30772.65628-30772.1339)/30772.…

Measures of welfare gains/losses

General DSGE Modeling Macroeconomic Model Data Base

jpfeifer 5 February 2021 09:35 16

It’s more complicated as we are talking about welfare, so the path of utility matters. Usually, you do something like