Non-zero residuals

Dear Prof. Pfeifer,

I am trying to implement a government consumption shock financed by debt and distortionary taxes (labour income and capital income taxes, tauW and tauK respectively). When I run the simulation, I get non-zero residuals for both tax processes and another equation which depends on labour income tax.

Could you please help with what is going wrong. Please run the run.m file which in turn runs the cycle_irf.mod file to see the results.

Many thanks in advance. (1.4 MB)

You need to make sure your loaded values are consistent with the model changes. That is why you should use a steady state file and not hard-coded values.