Oo_.planner_objective_value

Optimal Policy
5

Hi Ippei,

in your previous post, there shouldn’t be any u(t) because u(t) is observed at the beginning of the period and belongs by assumption to the information set of E_t()

If you want the unconditional welfare (a tricky concept), you could do the following

  1. include utility = u(y_t), the period utility function, among the variable/equation of the model. This doesn’t generate the same problem as adding the definition of welfare.
  2. then you can compute E(W_t) = E(u(y(t)) + \beta E(W_{t+1}) as
    E(W_t)= E(u(y_t))/(1-\beta) because E() being unconditional expectation, E(W_t) = E(W_{t+1}) and you can read E(u(y_t)) as the second order approximation to the mean of u
  3. In order to get the second order approximation of the model under Ramsey, you must indicate
    ramsey_model(planner_discount_factor=…);
    stoch_simul(order=2);

Hope it helps

Michel

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