documenting option 'instruments' for ramsey_policy
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@ -1730,7 +1730,7 @@ declared as @code{AUX_EXPECT_LAG_1 = x(+2)}.
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Auxiliary variables are also introduced by the preprocessor for the
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@code{ramsey_policy} command. In this case, they are used to represent the Lagrange
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multipliers when first order conditions of the ramsey problem are computed.
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multipliers when first order conditions of the Ramsey problem are computed.
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The new variables take the form @code{MULT_@var{i}}, where @var{i} represents
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the constraint with which the multiplier is associated (counted from the
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order of declaration in the model block).
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@ -4738,6 +4738,12 @@ This command accepts all options of @code{stoch_simul}, plus:
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@item planner_discount = @var{EXPRESSION}
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Declares the discount factor of the central planner. Default: @code{1.0}
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@item instruments = (@var{VARIABLE_NAME},@dots{})
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Declares instrument variables for the computation of the steady state
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under optimal policy. Requires a @code{steady_state_model} block or a
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@code{@dots{}_steadystate.m} file. See below.
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@end table
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Note that only first order approximation is available (@i{i.e.}
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@ -4751,6 +4757,26 @@ This command generates all the output variables of @code{stoch_simul}.
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In addition, it stores the value of planner objective function under
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Ramsey policy in @code{oo_.planner_objective_value}.
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@customhead{Steay state}
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Dynare takes advantage of the fact that the Lagrange multipliers appear
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linearly in the equations of the steady state of the model under optimal
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policy. Nevertheless, it is in general very difficult to compute the
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steady state with simply a numerical guess in @code{initval} for the
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endogenous variables.
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It greatly facilitates the computation, if the user provides an
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analytical solution for the steady state (in @code{steady_state_model}
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block or in a @code{@dots{}_steadystate.m} file). In this case, it is
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necessary to provide a steady state solution CONDITIONAL on the value of
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the instruments in the optimal policy problem and declared with option
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@code{instruments}. Note that choosing the instruments is partly a
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matter of interpretation and you can choose instruments that are handy
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from a mathematical point of view but different from the instruments you
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would refer to in the analysis of the paper. Typical example is choosing
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inflation or nominal interest rate as an instrument.
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@end deffn
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@anchor{discretionary_policy}
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