Dear All,

I am currently writing a New Keynesian model with search and matching frictions and real wage stickiness à la Hall and Milgrom (2008).

I try to determine both the optimal monetary policy and the optimal simple rule.

For the optimal monetary policy, I use the command “ramsey_policy” and Dynare runs perfectly.

However, I have some troubles to determine the optimal simple rule. Indeed, to use the command “osr”, I have to enter the value of the coefficients related to the variables in my objective function (“optim_weights”). You will find here attached a pdf file with the second order approximation of the welfare criteria corresponding to my model. Are the “optim_weights” I have to enter in the code the same as the coefficients in my loss function (equation (2)) ? For instance, does it mean that I have to give the value of lambda after inflation and (sigma-1) after consumption in the “optim_weights” block ?

Thanks by advance for your help.

Loss function.pdf (79 KB)