# How to analyze two shocks simultaneously in a model?

Hello everyone, my model introduces the consumption tax rate (tc), labor tax rate (tl) and capital tax rate (tk), and studies the impact of these tax rate changes on the impact of government expenditure. I want to know how to do this analysis:

How the government expenditure shock (g) affects other endogenous variables with a 1% increase in the consumption tax rate (tc). That is, how to study the impact of these two shocks on endogenous variables at the same time?

My model is below. Can you help me to see if it is reasonable?

``````clc;
close all;
var c l lambada y w r rk v x z k i b g t tc tl tk;
varexo ev ex ez eg etc etl etk;
parameters rhov rhox rhoz gamma beta alpha phi omiga delta rhog dphi rhotc rhotl rhotk;
parameters css lss lambadass yss rss rkss wss vss xss zss kss iss bss gss tss ss1 ss2 ss3 ss4 ss5 tcss tlss tkss;

gamma  =  2;
phi    =  1;
beta   =  0.99;
delta  =  0.025;
alpha  =  0.6;
omiga  =  1;
rhov   =  0.9;
rhox   =  0.9;
rhoz   =  0.9;
rhog   =  0.9;
dphi   =  0.1;
rhotc  =  0.9;
rhotl  =  0.9;
rhotk  =  0.9;

zss    =  1;
vss    =  1;
xss    =  1;
ss4    =  0.2;     //gss/yss
ss5    =  5;       //bss/yss
tcss   =  0.1;
tlss   =  0.2;
tkss   =  0.25;
wss    =  ((zss*(alpha^alpha)*((1-alpha)^(1-alpha)))/(rkss^alpha))^(1/(1-alpha));
ss1    =  alpha/rkss;
ss2    =  (1-alpha)/wss;
ss3    =  1-delta*ss1-ss4;
yss    =  ((1-tlss)/(1+tcss)*(1-alpha)*(ss2^(-1))*(ss3^(-gamma))/(omiga*xss*(ss2)^phi))^(1/(phi+gamma));
kss    =ss1*yss;
lss    =ss2*yss;
css    =ss3*yss;
gss    =ss4*yss;
bss    =ss5*yss;
iss    =yss-css-gss;

model;
rk          =  alpha*((yss*(1+y))/(kss*(1+k)))-rkss;
wss*(1+w)   =  (1-alpha)*yss*(1+y)/(lss*(1+l));
kss*(1+k)   =  (1-delta)*kss*(1+k(-1))+iss*(1+i(-1));
yss*(1+y)   =  css*(1+c)+iss*(1+i)+gss*(1+g);
yss*(1+y)   =  zss*(1+z)*(kss^alpha)*(1+alpha*k)*(lss^(1-alpha))*(1+(1-alpha)*l);

t           =  dphi*bss*b/tss;
v           =  rhov*(v(-1))+ev;
x           =  rhox*(x(-1))+ex;
z           =  rhoz*(z(-1))+ez;
g           =  rhog*(g(-1))+eg;
tc          =  rhotc*(tc(-1))+etc;
tl          =  rhotl*(tl(-1))+etl;
tk          =  rhotk*(tk(-1))+etk;
end;

initval;
etc  =  0;
end;

endval;
etc  =  (1-rhotc)*log(1.01);
end;

shocks;
var etc;
periods 0;
values 0;
var eg;
periods 1;
values 0.01;
end;

simul(periods=40);

rplot y;
rplot c;
``````

Cha3bn1_tc.mod (2.5 KB)

I know that (tc) is a shock,and (eg) is a shock too. So I want to learn what will happen if (tc) raise from 10% to 11% and the government expenditure raise 1% from its steady-state.

Hi, what exactly is your question?

Hi Jpfeifer! My question is how to make a mixed shock. My question is how to make a hybrid impact model. I made a hypothesis that the government increased the initial consumption tax from 10% to 11%, so when the government expenditure shock occurs after the consumption tax increase, I want to study the increase of this consumption tax. What impact does the shock have on other endogenous variables? And this consumption tax itself is a kind of shock. I don’t know how to change the impact of consumption tax and government expenditure at the same time in the model. In other words, when I set the consumption tax rate of the original model to 10%, I didn’t know how to set the consumption tax rate of the new model to 11%.

These don’t get me the results I want, I don’t know how to change it to be correct.