Dear jpeifer,

I have got conflicting answers throughout this board on the first question and the second is related. I would very much appreciate your clarification:

- Some documentation says that Ramsey Optimal Policy can be done in a linearized model entered into Dynare (with y^2 + pi^2 as the objective function instead of u(c,l): dynare.org/DynareWiki/OptimalPolicy and Simple Optimal Monetary Rules

But you have said before that the model should be non-linear - this is because the problems calls for a second-order Taylor approximation instead of first. Here one can enter u(c,l) and non-linear constraints and Dynare will take the 2-order TA.

- So, can you clarify if the objective function: y^2 + pi^2 in a linear Dynare model can also be used to give Ramsey optimal policy predictions (as compared to the objective function u(c,l) in a non-linear model)? This seems to be claimed in the documentation linked to.

- The following code, entered into Dynare ++ (open economy New Keynesian model with two sectors demanding labour) does not work. This is another attempt to compute Ramsey policy. Is it a problem with the syntax or a more structural issue? Is there an example .mod Dynare++ file for an open economy that you can provide.

Thank you!

Ana

var Y NY C Q CH N NR prf;

varexo eps_prf ;

parameters alpha alphaR phi rho beta ;

alpha = 0.4 ;

alphaR = 0.4 ;

phi = 3 ;

who = 0.8 ;

beta = 0.99 ;

planner_objective LnĀ© + N^(1-phi)/(1-phi);

planner_discount beta;

model;

C = Q ;

N = NR + NY ;

NR = (1-alphaR)*prf*Q^(1/*1-alpha)) ;

NY = Y ;

Y = CH ;

CH = (1-alpha)*C*Q^(1/*1-alpha)) ;
prf = rho*prf(-1) + eps_prf ;

end;

initval;

prf = 0 ;

NR = 0 ;

Q = 1;

C = 1;

CH = (1-alpha) ;

Y = (1-alpha) ;

NY = (1-alpha) ;

N = (1-alpha) ;

order = 2;

vcov =

0.01

];