Dear Prof Johannes,
I am confusing with the perfect foresight simulation when I incorporate (or not incorporate) Bond in the household and government budget constraints.
That is if I have B = s_b * Y, where s_b is a calibrated parameter represent the ratio of B over Y, then setting s_b = 0 does not produce the same time paths as that of the model without explicit Bond in the budget constraints (household and government).
I tried to vary calibrated s_b values from 0, 10%,…,70% but the responses of the model is always the same no matter what s_b value. So, could you please explain to me what happens in this case?
Many thanks,