Some questions in optimal policy of discretion and commitment

Hi, everyone:
Here I met some trouble when I try to make policy analisys. the paper I want to replicate is De Paoli(2012), which is about the coordination of monetary policy and macroprudential policy.Specifically, there are two policies: the monetary policy(MAP) and the macro-prudential policy(MOP) in my model,and I want to compare the policy combination under discretionary case and commitment case. here I have three questions in dynare my model.

1.when I try to select instrument, I see that the number of instruments should be equal to the omitted equations, but which equations should to be omitted, which instruments should be selected, is there any criterion or just a rule of thumb? ramsey case, the dynare is OK, but when I use discretionary_policy, the output shows taht “Discretionary policy: some eigenvalues greater than options_.qz_criterium. Model potentially unstable”. How to solve this problem?

3.if discretionary_policy and ramsey_policy runs OK, then how to select the best parameters that minimise the planner_objective? is there any good way?

paoli1.mod (2.0 KB)

  1. See
  1. In that case, you model may not be well-behaved. Try to find out whether a bounded solution exists in this case.
  2. Which parameters are you talking about? Parameters are fixed objects.