Dear all,
Firstly apologies for my lack of information/ability in using Dynare and DSGE - am writing my first paper on it, and learning to code at the same time so bear with me if you can.
My goal is to calibrate the basic New Keynesian model found in Galí (2008) chapter 3 to current day Japan, and then use it to estimate the effects of upcoming policy changes under Abe. I have begun by using Prof. Pfeifer’s example .mod file found on his (very useful I may say) github, and am planning to use estimated posterior parameters as my initials from the likes of Sugo and Ueda.
There is an expected VAT increase later this year, and I want to input that as a shock into the model in the form of a consumption tax. My first question is: should I consider this a deterministic shock as Japanese people know this tax increase is coming?
In addition to this, I believe the first step would be to multiply (1+τ) to variable C in my period budget constraint [τ being the VAT increase] but would I have to re-do the Lagrangian and subsequently find new equations for my model block, and then input that code into Dynare? Or is there a simpler way to do this for a beginner?
I hope I haven’t been speaking total nonsense and someone can help me out,
Cheers.