I’ve been working on my model for some time and it is totally surprusingly for me now that if I just a bit rewrite the model - basically make three equations out of one and consequently, add two endogenous variables - the properties of the model CHANGE.
I’m doing the following - first I had the production function combined with labour market clearing conditions for two types of agents. However, just for practical reasons I wanted to write separately the production function and two labour market clearing conditions. So I did that and added two variables for labour supply of these agents (without chaning ANY other things in the model).
However, output got almost TWO times more volatile than before (standard deviation got two times larger)!
For me it is totally counterintuitive and looks like something is going wrong. Does anybody know why it could happen?
I didn’t intend with this small technical change to change any properties of the model…
Thanks in advance!