Dear dynare team,
Iam working on the hybrid nkm with a mix of rational expectations and bounded rationality.
Iam following the approach of Brocks/Hommes.
My PC looks like:
pi= gamma_f* pi(+1) +gamma_b*(alpha)^2* pi(-1) +k* x+vt
pi= gamma_f* pi(+1) +gamma_b* pi(+1) + k*x +vt
alpha^2 is the bounded rationality partameter
In the next step I set
alpha =0 for stationary expectations
gamma_f =0 and
so it seems to be a purely backward-looking pc but through the alpha=0 the forward and backward looking part of the pc is 0 and just k*x+vt remains.
Dynare gives me a loss of 1, 28… but I think the loss needs to be zero in commitment?
We just have a contemporaneous variable in the pc.
And in this case my OSR Loss is bigger than in discretion and commitment. How can it be?