I have a question on how shock is implemented in perfect foresight simulation.
I want to implement a permanent tax in my model. I know that there are many topics about this. However, due to the complexity of my model and I don’t need to preserve the nonlinearity of the model, I find out that there is an option stack_solve_algo=0, linear_approximation.
However, I am not sure if I use this, my shock is an unanticipated or anticipated shock. Secondly, I want to simulate a ‘transition dynamic’. I am not sure if this is the correct way to do it. Thirdly, will it give me a different results compared to more common way with initial, endval(with the value of tax) and perfect_foresight_solver ?
Thank you so much for all kinds of help.