Insert_App_2_PLT.m

% Policy Application - New Keynesian model in Brendon, Paustian and Yates (2013). 
% Parameters excet theta_p based on the example in Holden (2023, Supp Appendix, Section E).
% Note that the interest rate responds to the price-level gap (not the inflation gap).

%Calibration
betta = 0.99;
X1_min = betta-1; 
sigma = 1;
kappa = (1-0.85)*(1-0.85*betta)*(2+sigma)/0.85;
rho_i = 0;

thetta_pi = 1.5;
thetta_p = thetta_pi;
thetta_y = 0;
thetta_dy = 1.6;

%Matrices for xstar
F = [0 1 zeros(1,13)]; G = 0; H = 0;

%Reference regime
B1 = [1 -1 0 0 0; 0 1 -(1-rho_i)*(thetta_y+thetta_dy) 0 -(1-rho_i)*thetta_p; 1/sigma 0 1 0 0; 0 0 -kappa 1 0; 0 0 0 -1 1];
B2 = [zeros(2,5); 0 0 1 1/sigma 0; 0 0 0 betta 0; zeros(1,5)];
B3 = [0 0 0 0 0; 0 rho_i -(1-rho_i)*thetta_dy 0 0; zeros(2,5); 0 0 0 0 1];
B4 = [0;0;1;0;0];
B5 = [0;0;0;0;0];

%Alternative regime
B1_tild = [1 0 0 0 0; 0 1 -(1-rho_i)*(thetta_y+thetta_dy) 0 -(1-rho_i)*thetta_p; 1/sigma 0 1 0 0; 0 0 -kappa 1 0; 0 0 0 -1 1];
B2_tild = B2;
B3_tild = B3;
B4_tild = B4;
B5_tild = [X1_min; 0; 0; 0; 0];