Monetary policy rules

#1

Hello,

I am trying to build the kind of NK model, and I would like to change the monetary-policy equations. Specifically, I am interested mainly in the difference between the growth rate and the level targeting. Unfortunately, the model goes only when considering the price level target. When I try to switch to the inflation target, it does not find the steady-state. The same holds also for the nominal GDP growth target, and also for the nominal GDP level target.

However, when I run my model without exp(x) definition, i.e. only in linearized form, it does work with all of the rules. Frankly, I am not aware of where can be the problem. Hence, I would really appreciate any help or advice.

The models are attached below.

rules_log_lin.mod (12.4 KB)

rules_lin.mod (8.7 KB)

Thanks a lot in advance!

F.

#2

I could run both attached files in Dynare 4.5.7.

#3

Mr. Pfeifer, thank you for your prompt reply.

The problem is with the rules_log_lin.mod (12.4 KB) file, specifically with the other monetary policy rules, i.e. the model runs when I choose the price level targeting as the monetary policy rule (the preset equation 28) but it does not run with the other rules (when I incorporate the equations 26, 29, or 30, instead of the 28, the model does not find the steady state). In the second file, there is no problem, the model runs with all of the monetary policy rules. I am not aware where exactly is the problem with the first one file.

#4

In New Keynesian models, the price level is usually indeterminate. There are infinitely many steady states and you need to select one of those. But now your are trying to compute that price level endogenously. This cannot work.