Hello everyone,
I am currently working on solving for the steady state in a Ramsey model using a steady state file. My model includes labour adjustment costs, which are assumed to be zero in the steady state. Consequently, the parameter for labour adjustment costs (named pssi) does not appear in the steady state file. However, I’ve encountered an issue that I can’t seem to resolve.
As I increase the labour adjustment costs (pssi), the value for the instrument (tau) in the steady state increases. This is perplexing to me because this parameter does not affect the steady state file I provide to Dynare. Moreover, in absence of the Ramsey model (i.e. without an optimal policy), the steady state remains unchanged regardless of the value of pssi.
I am trying to understand why the steady state value of the instrument (tau) is influenced by pssi when solving the Ramsey model. Could this be due to a numerical issue or an approximation within the Ramsey model framework? Or is there something fundamental that I might be missing?
Any insights or suggestions on this matter would be greatly appreciated.
Thank you in advance for your help!
Best regards,
Ferdinand
EGK11_FF_ETAX.mod (5.1 KB)
EGK11_FF_ETAX_steadystate.m (3.6 KB)
findssFF_TAX.m (1.2 KB)