Do you mind to elaborate on what shall I change? Since the R is the deviation from steady state in the model, so I should take out steady state value? Or I should rewrite function in the non-deviation way? I am a little confused.
You should not confuse the approximation point of the model when you entered linearized equations with the actual steady state of the Ramsey model. Essentially, the planner choses a value for R in steady state, and given that value, you can compute the steady state inflation rate associated with that value. Everything else follows from there.
Appreciate your instructions! So I should set R_ss as endogenous variable and compute other steady state value following R_ss that dynare computes? And in my model, if I refer to each steady state value, I should take it out and write the model without log deviation?
R_ss is about the linearization point. You should be able to leave that parameter value in place. The point is that the actual variables will not be 0 if the planner sets an interest rate that is not 0 (in deviations from steady state).
Hello, Prof Pfeifer. I encounter an issue when i try to modify the code by introducing taxation and government spending. i try both as endogenous variables in optimal ramsey policy. Why I set initial value to all 0, there is no residual, but it gives Ramsey: The solution to the static first order conditions for optimal policy could not be found. Either the model doesn’t have a steady state, there are an infinity of steady
states, or the guess values are too far from the solution. and when I set all initial value to 0.001, there are lots of residuals. Do you mind to provide some instructions on how should I debug the code.
code.zip (7.1 KB)
The error message means that despite the private sector FOCs solving, there was no steady state for the Ramsey problem found. Are you sure that such a steady state even exists?