I have problems with the optimal simple rule.

I tried in the policy rule:

m=gamma1*y(-1)+gamma2*p(-1)+gamma3*e(-1)+gamma4*m(-1);

and I get “Blanchard Kahn conditions are not satisfied: no stable equilibrium”

I change the policy rule to:

m=gamma1*y(-1)+gamma2*p(-1)+gamma3*e(-2)+gamma4*m(-1);

and I get the objective function negative.

I made different policy rules with different policy rules and they worked without problems.

How can I solve this problem??

Thanks

tes5.mod (1.72 KB)

You need to understand the economic logic of your policy rules and what is required to get a unique determinate solution. For example, I presume that there are values for the gammas that make the first version run.

Do you mean that I should change the periods of the policy rule??

Why do I get a negative value for the objective function? Is that correct?

Thanks

No, I am saying that if your OSR should make sense, there should be parameters gamma that make it work for any timing.

The negative value for the objective function is strange unless you have negative weights in your objective.