Good morning Dynare Forum,
I have a sort of theoretical question about the solution of Ramsey policy problems in general.
I have been asked why I opted for a numerical solution for my Ramsey problem (I used the Dynare routine to solve it) and I have to motivate why I did not opt instead for a primal approach (or, in other terms, why the primal approach was not feasible).
I do not really understand the meaning of the comments, can someone help me?
Thanks a lot for the support!
Have a nice day
It seems the question is why you don’t directly compute the central planner allocation but instead go for a decentralized equilibrium where agents react to factor prices resulting from the planner’s choices. I don’t see how that relates the “numerical solution”. You would need to solve the model in any case, regardless of which specification you choose.
Dear Professor, thank you very much for your reply!
I think that I got your point about the “numerical” nature of the problem. However, it is still not very clear to me the first part of your answer. Can you kindly elaborate a little bit more, please ?
Thanks again for the help and the commitment!
Have a nice day
The primal approach is the one of the social planner who directly chooses allocations. That’s not how market economies work. Rather, agents face prices and react to those. The Ramsey planner approach is one where the planner uses instruments to influence private sector allocations. Of course, for many models the two solutions coincide. But the latter worries more about whether a planner solution can actually be implemented in market economies.