Ramsey policy "Index exceeds matrix dimensions" error

Optimal Policy
1

Hi all,

I am trying to compute optimal macroprudential policy using the ramsey_policy command but I get an “Index exceeds matrix dimensions” error when I try to run the .mod file.

It’s the first time I’ve been using this command so I am not very confident that the way I’m trying to implement it is correct. In particular, I have the following doubts:

  1. I am calculating the steady state analytically in a separate file, and given that both instruments relate to cyclical policy, they should not affect the steady state. Should I just compute steady-state values for all variables except the instruments (taus and taun in my case) and then set initial values for the instruments in the .mod file?

  2. If I have N variables and 2 instruments, should I have N - 2 equations in my .mod file?

I attach the .mod and _steadystate files for reference.

Best,
Marco

nkopenadjbankpruramsey.mod (7.0 KB)
nkopenadjbankpruramsey_steadystate.m (1.5 KB)

2

You need to use a proper steady state file or steady_state_model-block. See e.g. https://github.com/DynareTeam/dynare/blob/master/tests/optimal_policy/Ramsey/ramsey_ex.mod
Your current file does not take care of returning a vector of the right size.

3

Dear professor Pfeifer,

thank you for the prompt reply. I understand that the error stems from the vector output by the steady state file having the wrong number of dimensions, but I was wondering why that is the case.

My current understanding (and the procedure I used in the files posted above) is that, if I have N variables, 2 of which are instruments, my steady state file should output a N-2 dimensional vector and my .mod file should provide a guess for the 2 instruments in the initval block, is this correct?

Thanks again!

Best,
Marco

4

There is a difference between the numerical values you need to provide (N-2) and the size the output vector
needs to have N+#Lagrange Multipliers. That’s why I said you should use a proper steady state file. See e.g. https://github.com/DynareTeam/dynare/blob/master/examples/NK_baseline_steadystate.m

At a minimum, do not change the size of the vector ys coming into your file.

5

Dear professor Pfeifer,

Thank you very much for the explanation! Following your advice, I changed the steady state file so that it only changes the values of variables in the ys vector instead of re-defining it as the previous file did.

However, when I run the dynare file I now get the following error: “Undefined function or variable ‘ys’”. I also tried computing the steady state in the steady_state_model block in the .mod file but I get the same error. Any idea why this might be the case?

The new steady state file is attached for reference.

Best,
Marco

nkopenadjbankpruramsey_steadystate.m (1.8 KB)

6

Please provide the full mod-file with the steady_state_model-block.

7

Here is the .mod file, I wrote it in levels so it’s easier to check.

Thanks again!

Best,
Marco

nkopenadjbankpruramseylevels.mod (7.3 KB)

8

If you type
resid
after the error message, you will see

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 : 0.57613
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 : -0.68067
Equation number 18 : 0
Equation number 19 : 0
Equation number 20 : 0
Equation number 21 : 0
Equation number 22 : 0
Equation number 23 : 0
Equation number 24 : 0
Equation number 25 : 0
Equation number 26 : 0
Equation number 27 : 0
Equation number 28 : 0
Equation number 29 : 0
Equation number 30 : 0
Equation number 31 : 0
Equation number 32 : 0
Equation number 33 : 0
Equation number 34 : 0
Equation number 35 : 0
Equation number 36 : 0
Equation number 37 : 0

So there is still a problem with your steady state computation.