I am trying to modify the model in “The Macroeconomics of Trend Inflation” by Ascari & Sbordone (2014) as replicated in the .mod file by Johannes Pfeifer.
My aim is to analyse the impact of fiscal shocks on the economy. As of now, the model includes government spending, lump-sum transfers and distortionary labour income taxes. However, when I try to add the equation specifying the evolution of government debt, Dynare throws an error that BK conditions are not satisfied. I guess the error is in the timing, but I fail to notice where exactly it lies.
mod1.mod (7.6 KB)
Any help would be greatly appreciated!