Hello,
I have solved for the Ramsey planner’s allocation using Dynare, but I find that the unconditional and conditional welfare is equal to 0. My objective function for the planner is defined as follows:
\phi b^2 + \sigma c_T^2 + \chi\sigma y_N^2 + \psi/\alpha_T (y_T-a_T)^2 + \chi\psi/\alpha_N(y_N-a_N)^2
The variances I get for the endogenous variables are non-zero, so the unconditional welfare should be strictly positive.
If I solve for the discretionary policy, then the unconditional welfare is around 0.018. I would assume unconditional welfare for the commitment case (the Ramsey solution) to be around this neighborhood.
Is there something I am doing wrong with the code? Or something I am misunderstanding about how unconditional welfare is calculated? The mod file is attached.
baseline_commit.mod (813 Bytes)
Thank you in advance!