Hello, I have tried to build a DSGE model featuring 2 consumers with government spending and lump sump taxes. Here is the mod file: lumpfinaltest.mod (3.5 KB) . Dynare finds exactly the steady states values I entered in the initval block. However I get inconsistent IRF’s:
A positive shock to the interest rate set by the central bank, a positive shock to government spending or a positive shock to lump sump taxes all produce a positive response of output.
Maybe the problem comes from my fiscal and taylor rules. They are written in the following way (variables without time subscript are steady state variables):
G_t=G_{t-1}^{\rho_g}*G^{1-\rho_g}*exp(\sigma_G*\epsilon_G)
T_t=T_{t-1}^{\rho_g}*T^{1-\rho_g}*(\frac{B_t^g}{B^g})^{\rho_g}*exp(\sigma_T*\epsilon_T)
where B_t^g is government debt
I only allowed for the taxes to respond to movement of public debt because (please correct me if I’m wrong) I need only 1 fiscal instrument to respond to public debt to have the intertemporal government budget contraint not exploding.
%Taylor Rule
log(r_t+1) = (1-\rho_r)*log(r) + \rho_r*log(r_{t-1}+1) + (1-\rho_r)*\theta_{\pi}*log(\pi_t+1) + \sigma_r*\epsilon_r;
Is there someting wrong in my file ? Thank you.