forked from albop/dynare
-
Notifications
You must be signed in to change notification settings - Fork 7
Commit
This commit does not belong to any branch on this repository, and may belong to a fork outside of the repository.
Add unit test for correctness of discretionary policy
- Loading branch information
1 parent
b592987
commit 752bc54
Showing
2 changed files
with
150 additions
and
0 deletions.
There are no files selected for viewing
This file contains bidirectional Unicode text that may be interpreted or compiled differently than what appears below. To review, open the file in an editor that reveals hidden Unicode characters.
Learn more about bidirectional Unicode characters
This file contains bidirectional Unicode text that may be interpreted or compiled differently than what appears below. To review, open the file in an editor that reveals hidden Unicode characters.
Learn more about bidirectional Unicode characters
Original file line number | Diff line number | Diff line change |
---|---|---|
@@ -0,0 +1,149 @@ | ||
/* | ||
* This file implements the baseline New Keynesian model of Jordi Galí (2008): Monetary Policy, Inflation, | ||
* and the Business Cycle, Princeton University Press, Chapter 5 | ||
* | ||
* This implementation was written by Johannes Pfeifer. | ||
* | ||
* Please note that the following copyright notice only applies to this Dynare | ||
* implementation of the model. | ||
*/ | ||
|
||
/* | ||
* Copyright (C) 2013-15 Johannes Pfeifer | ||
* | ||
* This is free software: you can redistribute it and/or modify | ||
* it under the terms of the GNU General Public License as published by | ||
* the Free Software Foundation, either version 3 of the License, or | ||
* (at your option) any later version. | ||
* | ||
* It is distributed in the hope that it will be useful, | ||
* but WITHOUT ANY WARRANTY; without even the implied warranty of | ||
* MERCHANTABILITY or FITNESS FOR A PARTICULAR PURPOSE. See the | ||
* GNU General Public License for more details. | ||
* | ||
* For a copy of the GNU General Public License, | ||
* see <http://www.gnu.org/licenses/>. | ||
*/ | ||
|
||
|
||
var pi | ||
y_gap | ||
r_e | ||
y_e | ||
r_nat | ||
i | ||
u | ||
a | ||
p | ||
; | ||
|
||
varexo eps_a | ||
eps_u; | ||
|
||
parameters alppha | ||
betta | ||
rho_a | ||
rho_u | ||
siggma | ||
phi | ||
phi_y | ||
eta | ||
epsilon | ||
theta | ||
; | ||
%---------------------------------------------------------------- | ||
% Parametrization, p. 52 | ||
%---------------------------------------------------------------- | ||
siggma = 1; | ||
phi=1; | ||
phi_y = .5/4; | ||
theta=2/3; | ||
rho_u = 0; | ||
rho_a = 0.9; | ||
betta = 0.99; | ||
eta =4; | ||
alppha=1/3; | ||
epsilon=6; | ||
|
||
|
||
|
||
%---------------------------------------------------------------- | ||
% First Order Conditions | ||
%---------------------------------------------------------------- | ||
|
||
model(linear); | ||
//Composite parameters | ||
#Omega=(1-alppha)/(1-alppha+alppha*epsilon); //defined on page 47 | ||
#psi_n_ya=(1+phi)/(siggma*(1-alppha)+phi+alppha); //defined on page 48 | ||
#lambda=(1-theta)*(1-betta*theta)/theta*Omega; //defined on page 47 | ||
#kappa=lambda*(siggma+(phi+alppha)/(1-alppha)); //defined on page 49 | ||
#alpha_x=kappa/epsilon; //defined on page 96 | ||
#phi_pi=(1-rho_u)*kappa*siggma/(alpha_x)+rho_u; //defined on page 101 | ||
|
||
r_e=siggma*(y_e(+1)-y_e); | ||
y_e=psi_n_ya*a; | ||
pi=betta*pi(+1)+kappa*y_gap + u; | ||
y_gap=-1/siggma*(i-pi(+1)-r_e)+y_gap(+1); | ||
//3. Interest Rate Rule eq. (25) | ||
% i=r_e+phi_pi*pi; | ||
|
||
r_nat=siggma*psi_n_ya*(a(+1)-a); | ||
u=rho_u*u(-1)+eps_u; | ||
a=rho_a*a(-1)+eps_a; | ||
|
||
pi=p-p(-1); | ||
end; | ||
|
||
%---------------------------------------------------------------- | ||
% define shock variances | ||
%--------------------------------------------------------------- | ||
|
||
|
||
shocks; | ||
var eps_u = 1; | ||
end; | ||
|
||
planner_objective pi^2 +(((1-theta)*(1-betta*theta)/theta*((1-alppha)/(1-alppha+alppha*epsilon)))*(siggma+(phi+alppha)/(1-alppha)))/epsilon*y_gap^2; | ||
|
||
discretionary_policy(instruments=(i),irf=20,planner_discount=betta,discretionary_tol=1e-12) y_gap pi p u; | ||
|
||
verbatim; | ||
%% Check correctness | ||
Omega=(1-alppha)/(1-alppha+alppha*epsilon); %defined on page 47 | ||
lambda=(1-theta)*(1-betta*theta)/theta*Omega; %defined on page 47 | ||
kappa=lambda*(siggma+(phi+alppha)/(1-alppha)); %defined on page 49 | ||
alpha_x=kappa/epsilon; %defined on page 96 | ||
Psi=1/(kappa^2+alpha_x*(1-betta*rho_u)); %defined on page 99 | ||
Psi_i=Psi*(kappa*siggma*(1-rho_u)+alpha_x*rho_u); %defined on page 101 | ||
phi_pi=(1-rho_u)*kappa*siggma/(alpha_x)+rho_u; %defined on page 101 | ||
|
||
%Compute theoretical solution | ||
var_pi_theoretical=(alpha_x*Psi)^2; %equation (6), p.99 | ||
var_y_gap_theoretical=(-kappa*Psi)^2; %equation (7), p.99 | ||
|
||
pi_pos=strmatch('pi',var_list_,'exact'); | ||
y_gap_pos=strmatch('y_gap',var_list_,'exact'); | ||
if abs(oo_.var(pi_pos,pi_pos)-var_pi_theoretical)>1e-10 || abs(oo_.var(y_gap_pos,y_gap_pos)-var_y_gap_theoretical)>1e-10 | ||
error('Variances under optimal policy are wrong') | ||
end | ||
|
||
%Compute theoretical objective function | ||
V=betta/(1-betta)*(var_pi_theoretical+alpha_x*var_y_gap_theoretical); %evaluate at steady state in first period | ||
|
||
if abs(V-oo_.planner_objective_value)>1e-10 | ||
error('Computed welfare deviates from theoretical welfare') | ||
end | ||
end; | ||
|
||
%% repeat exercise with initial shock of 1 to check whether planner objective is correctly specified | ||
initval; | ||
eps_u = 1; | ||
end; | ||
|
||
%Compute theoretical objective function | ||
V=var_pi_theoretical+alpha_x*var_y_gap_theoretical+ betta/(1-betta)*(var_pi_theoretical+alpha_x*var_y_gap_theoretical); %evaluate at steady state in first period | ||
|
||
discretionary_policy(instruments=(i),irf=20,discretionary_tol=1e-12,planner_discount=betta) y_gap pi p u; | ||
if abs(V-oo_.planner_objective_value)>1e-10 | ||
error('Computed welfare deviates from theoretical welfare') | ||
end |