Ramsey policy: distorted steady state


#1

Hi, All

Recently, I have been reading Gali’s Ch.5 and try to use dynare to do some experiments on Ramsey policy . I find Prof. Pfeifer’s github repo https://github.com/JohannesPfeifer/DSGE_mod/tree/master/Gali_2015 really helpful.

But one thing that is not included in Gali’s book and Pfeifer’s mod files is the quantitative results of the ramsey policy associated with the distorted steady state (Ch 5.3). I am wondering whether dynare can handle this kind of problem. In particular, is it possible to add any linear terms into the planner_objective block?

I am a noob in dynare. I tried many times in another similar case, but when the linear term entered the quadratic approximation to welfare, the programme broke down. Any ideas?

Ramsey.mod (1.6 KB)


#2

Your model does not make sense. If you have a distorted steady state, you cannot work with a linear model. Generally, you need to go to higher order. See e.g.

https://github.com/JohannesPfeifer/DSGE_mod/blob/master/Born_Pfeifer_2018/Welfare/Born_Pfeifer_2018_welfare.mod