Welfare evaluation of Ramsey policy in model with distorted steady state

[lfl]

Hello,

I have a NK DSGE model with a distorted steady state. I would like to evaluate welfare under Ramsey optimal policy (relative to welfare under an alternative policy). My understanding is that this requires taking a second-order approximation of the equilibrium conditions under the relevant policy. But Dynare only seems to allow for taking a first-order approximation to the FOC of the Ramsey problem, and not a second-order approximation.

Is there an alternative way of solving this type of problem with Dynare?

Thanks

L.

[jpfeifer]

Try

Oo_.planner_objective_value

Hi Ippei, in your previous post, there shouldn’t be any u(t) because u(t) is observed at the beginning of the period and belongs by assumption to the information set of E_t() If you want the unconditional welfare (a tricky concept), you could do the following include utility = u(y_t), the period utility function, among the variable/equation of the model. This doesn’t generate the same problem as adding the definition of welfare. then you can compute E(W_t) = E(u(y(t)) + \beta E(W_{t+1}) as E…