// How to use it?
//
// First you need to install dynare. Go to dynare.org, download the newest 
// stable version of dynare and install it on the computer.
//
// Open Matlab. Write "addpath c:\dynare" (the path where you installed dynare)
//
// Go to the folder with the current file and write "dynare NKM". This file
// should then run if you do one of the things listed below.
//
// Simulate with Taylor-rule: Uncomment line 34 and 46 and run. 
// Simulate with discretionary optimal policy: uncomment line 49, 52, and 53
// Simulate with optimal policy under commitment: uncomment line 49 and 56

var y inflation r g u;
varexo y_ inf_;

parameters beta sigma kappa lambda phipi phiy gamma_y_ gamma_inf_ rhou rhog;

kappa =  0.18;
beta = 0.99;
sigma = 1;
phipi = 1.5;
phiy = 0.5/4;
lambda = 0.5;
rhou = 0.5;
rhog = 0.5;

model(linear);
y  = y(+1)-1/sigma *(r - inflation(+1)) + g; 
inflation  =  beta*inflation(+1) + kappa*y + u;
u = rhou*u(-1) + inf_;
g = rhog*g(-1) + y_;
//r = phipi*inflation + phiy*y;
end;

shocks;
var y_;
stderr 0.1;
var inf_;
stderr 0.1;
end;


// Taylor rule 
//stoch_simul;

// Optimal Policy 
//planner_objective inflation^2 + lambda*y^2;

// 1. Discretion
//steady;
//discretionary_policy(instruments=(r));

// 2. Commitment
//ramsey_policy(planner_discount=beta);