Hi all,
I run a nonlinear model and reveive a negative steady state value ( for government bond). Regardless what the variable is, its SS should not be negative. Any clue why receiving a negative SS and how to resolve this issue? Thanks in advance.
Best,
Dave
Change your model or, if you think there are multiple steady states, provide starting values closer to the one you want to select.
But note that government bonds can be negative.
In fact a negative steady state for government bonds only indicates that the governmental revenues are higher than the governmental expenditures. So your result depends on the choosen values of taxes (distortionary and non-distortionary ones) and the choosen public consumption. Check the intertemporal budget equation of the government, this should be the equation that determines your government debt.
An other way: you could also change the setting and predetermine the steady state value for the government bonds to be a fraction of the steady state value of gdp. Then taxes/transfers will be lower in the steady state to lead to a positive steady state value for government debt.
Dear Johannes and Daniel,
Thank you very much for your suggestions!
Best,
Dave