I have a nonlinear model and I would like to compare the IRFs under optimal policy versus a simple Taylor Rule.
When I try to run the ramsey policy I received this message:
stoch_simul:: The simulations conducted for generating IRFs to eps_irstar were explosive.
So here are my questions.
Is there any problem with the model? For example: I am not sure that the calculation of steady-state (with an external function) is suitable for Ramsey problem since the steady-state can change under optimal policy.
If it is not, then I read that the solutions are : use a small size of shocks or use a first order simulation. But since my objective is the IRFs, then neither is appropriate for my problem, right? Is there any other solution?
I am using the nonlinear model because when there are distortions like monopolistic competition, the OSR function is not suitable for the model. Is there any other difference between OSR and ramsey policy? I read that the ramsey calculates a condition welfare (starting on steady-state) and OSR unconditional, but this is not completly clear for me.
Thank you in advance.