Dear Dynare team,
I am interested in obtaining welfare associated with discretionary monetary policy. The model I am using has an efficient steady-state. My understanding is that using the Dennis (2007) LQ approach is therefore in principal valid, avoiding spurious welfare ranking (Kim and Kim, 2003).
So I was planning to use discretionary_policy on a linearized verison of the model, where the planner objective is something like pi^2 + lambda*x^2, where pi is inflation, x is the output gap and lambda is a weight.
Now, I want to find welfare associated to discretionary policy with that particular quadratic planner objective. Including welfare recursively in the model is not possible, however, because discretionary_policy requires a purely linear model.
Is there a way how I can back out welfare after solving the model? I was thinking of simulating the model using periods = large number, backing out the levels of consumption and labor using their steady state (which I know) and then computing household utility each period. But I am not quite sure how to get from there to welfare.
Would appreciate your help, thanks in advance!