# Problem with Steady State computation of Ramsey Problem

Hello all,

I’m working on a simple 1-country model with banks and a macroprudential tax.
The model works fine when I set the tax at a single value and I solve the private agents equilibrium:

``````Found 19 equation(s).
Evaluating expressions...done
Computing static model derivatives:
- order 1
Computing dynamic model derivatives:
- order 1
Processing outputs ...
done
Preprocessing completed.

Residuals of the static equations:

Equation number 1 : 0
Equation number 2 : 0
Equation number 3 : 0
Equation number 4 : 0
Equation number 5 : 0
Equation number 6 : 0
Equation number 7 : 0
Equation number 8 : 0
Equation number 9 : 0
Equation number 10 : 0
Equation number 11 : 0
Equation number 12 : 0
Equation number 13 : 0
Equation number 14 : 0
Equation number 15 : 0
Equation number 16 : 0
Equation number 17 : 0
Equation number 18 : 0
Equation number 19 : 0

Cc      		 1.97251
Hc      		 0.864802
Rc      		 1.0101
Yc      		 2.49057
Ac      		 0
xic     		 0
Kc      		 20.7226
Ic      		 0.518065
rc      		 0.040022
Wc      		 1.92092
Qc      		 1
Rkc     		 1.01502
Nc      		 3.93638
Dc      		 16.7862
Lambdac 		 0.99
jc      		 2.00047
gammac  		 0.0250058
tauc    		 0
Tc      		 0
.
.
.

There are 4 eigenvalue(s) larger than 1 in modulus
for 4 forward-looking variable(s)

The rank condition is verified.

MODEL SUMMARY

Number of variables:         19
Number of stochastic shocks: 2
Number of state variables:   8
Number of jumpers:           4
Number of static variables:  8
``````

But when I try to compute the optimal policy by just adding:

``````// Objective function and discount factor
planner_objective (Cc)^(1-sigmma)/(1-sigmma) - (Hc)^(1+pssi)/(1+pssi) ;
ramsey_model(instruments=(tauc), planner_discount=betta);
options_.ramsey.maxit = 5000;
``````

Of course, that implies that I am removing the tax equation from the model block:

``````//19: Taxes (set here an eq. if No Opt. Fiscal Policy)
//tauc = 0.0;
``````

Now, my problem is that the SPP cannot be computed, not even the steady state. I get this:

``````Residuals of the static equations:

Equation number 1 : 2.7924e-05
Equation number 2 : 1.1e-05
Equation number 3 : 1.4733e-07
Equation number 4 : 7.6384e-05
Equation number 5 : 0
Equation number 6 : 0
Equation number 7 : 0.0013946
Equation number 8 : 4.8461e-05
Equation number 9 : -1.439e-06
Equation number 10 : 3.4481e-05
Equation number 11 : 0
Equation number 12 : 1.2334e-07
Equation number 13 : 0.00021397
Equation number 14 : 0.0011806
Equation number 15 : -1.4295e-07
Equation number 16 : 2.5886e-05
Equation number 17 : 1.9926e-07
Equation number 18 : -3.9036e-05
Equation number 19 : 3.2375e-05

Error using print_info (line 156)
Ramsey: The maximum number of iterations has been reached. Try increasing maxit.
print_info(info,options_.noprint, options_);
Error in MaP_1CountryAE_Lv (line 367)
Error in dynare (line 235)
evalin('base',fname) ;
``````

Two things look odd to me. First, that the residuals of the equations don’t look as nice as before (they’re close to zero but not exactly as before). The other is that it’s asking me for more allowed iterations. (that’s the reason why I added the maxit=5000 line).

After I added the line I get the same, only about 30min later:

``````Error using print_info (line 156)
Ramsey: The maximum number of iterations has been reached. Try increasing maxit.
print_info(info,options_.noprint, options_);
Error in MaP_1CountryAE_Lv (line 368)
Error in dynare (line 235)
evalin('base',fname) ;
``````

What can I do? I was dead sure that as long as I provided a private equilibrium working I could get a simple Ramsey (one instrument) to work.

Can somebody help me? Any input is greatly appreciated.

Thanks,

Camilo G.

You need to provide a conditional analytical steady state file here. That will turn the steady state finding into a linear problem.

Hi Johannes. I have my conditional analytical steady state file. But inside it there are functions that contain equations contining in turns the instrument. When I run the code under Ramsey policy dynare complains that the value of the instrument inside there is undefined (Undefined function or variable ‘instrument’). I thought the Ramsey command would pass the value for the instrument to all sections of the steasy state, but it does not seem the case. Any suggestions?

I would need to see the codes