Ramsey_policy

Optimal Policy
1

Dear Professor Jpfeifer,

I’m learning how to compute the optimal policies with Dynare. Based on Liu, et.al (2013), I added

ramsey_policy; planner_objective(Ch); ramsey_model(planner_discount=0.98);
in their mod file. I let the planner’s objective be maximizing the discounted sum of log(Ch/Chss), which is expressed by Ch since their model is log-linearized.
But it reported that
Error: File: lwz_model.m Line: 599 Column: 30
The expression to the left of the equals sign is not a valid target for an assignment.

Error in dynare (line 180)
evalin(‘base’,fname) ;
It there anything wrong?
lwz_model.mod (9.2 KB)

2

You are using the

ramsey_model

command that was only introduced after Dynare 4.4.3. Therefore, you need to use the unstable version if you want to use it.

3

And you Professor！

I change the lines into

ramsey_policy(planner_discount=0.98,order=1); planner_objective(Ch);
And it reports that
Blanchard Kahn conditions are not satisfied: no stable equilibrium
Is it the planner’s objective that leads to the problem?

And another problem is that, when my model is log-linearized, do I need to log-linearize the planner’s objective function?

4

Your planner objective must be consistent with the variables defined in the model.
Regarding the BK conditions, it is hard to tell what the problem is. If your model setup is correct, the reason most of the time it is that there are multiple steady states for the Ramsey model and a wrong one was found. Providing an instrument and a conditional steady state file often helps in these cases. When doing so, you should use the unstable version as 4.4.3 is buggy with instruments.