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4.16 Optimal policy

Dynare has tools to compute optimal policies for quadratic objectives. You can either solve for optimal policy under commitment with ramsey_policy or for optimal simple rule with osr.

Command: osr [VARIABLE_NAME…];
Command: osr (OPTIONS…) [VARIABLE_NAME…];

Description

This command computes optimal simple policy rules for linear-quadratic problems of the form:

$\max_\gamma E(y'_tWy_t)$

such that:

$A_1 E_ty_{t+1}+A_2 y_t+ A_3 y_{t-1}+C e_t=0$

where:

The parameters to be optimized must be listed with osr_params.

The quadratic objectives must be listed with optim_weights.

This problem is solved using a numerical optimizer.

Options

This command accept the same options than stoch_simul (see section Computing the stochastic solution).

Command: osr_params PARAMETER_NAME…;

This command declares parameters to be optimized by osr.

Block: optim_weights ;

This block specifies quadratic objectives for optimal policy problems

More precisely, this block specifies the nonzero elements of the quadratic weight matrices for the objectives in osr.

A element of the diagonal of the weight matrix is given by a line of the form:

 
VARIABLE_NAME EXPRESSION;

An off-the-diagonal element of the weight matrix is given by a line of the form:

 
VARIABLE_NAME,  VARIABLE_NAME EXPRESSION;
Command: ramsey_policy [VARIABLE_NAME…];
Command: ramsey_policy (OPTIONS…) [VARIABLE_NAME…];

Description

This command computes the first order approximation of the policy that maximizes the policy maker objective function submitted to the constraints provided by the equilibrium path of the economy.

The planner objective must be declared with the planner_objective command.

Options

This command accepts all options of stoch_simul, plus:

planner_discount = DOUBLE

Declares the discount factor of the central planner. Default: 1.0

Note that only first order approximation is available (i.e. order=1 must be specified).

Output

This command generates all the output variables of stoch_simul.

In addition, it stores the value of planner objective function under Ramsey policy in oo_.planner_objective_value.

Command: planner_objective MODEL_EXPRESSION;

This command declares the policy maker objective, for use with ramsey_policy.


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