Hi All
Is it possible that the optimal simple rules computed by dynare violate the Blanchard-Kahn determinacy conditions?
Thanks
Reuben
No, that should never happen. If you encounter this in the most recent Dynare version, please send me the files to check for the presence of a bug.
Thanks Johannes. It is my colleague who is facing the problem using dynare 4.3.0. The problem occurs when when the osr command is used within a loop over lambda_y and lambda_r, the weights in the loss function over the variance of output and interest rate, in the monetary authority’s loss function. For each value of lambda_y lambda_r], the osr is initiated with the parameters set at the same standard values. At some point in the grid, once the optimal rule is found, dynare reports Blanchard-Kahn indeterminacy and the loop does not progress. Let me see if I can get the code.
Reuben
Before doing so, please tell him to use the most recent unstable version. There were quite a few bugs affecting osr that have been fixed.