Perfect foresight simulation problem

Dear Johanes,

Hope you re doing well. I am trying to do a perfect foresight simulation of an OLG model but I cannot find the source of the problem. I suspect that it might be a timing issue (for example the timing of the bond interest rate) but I am not sure. Model diagnostics do not report any problem with the mod file.

Just to give an idea, when I want to implement a policy change e.g. reduction in the labour tax rate from 0.13 to 0.12 simulation fails (matrix is singular or some complex numbers are produced)

Any ideas? i attach the mod

OLG_richpoor3_transition.mod (12.8 KB)

My hunch is that you have the issue at

Dear Johannes
Thank you for your reply. I worked a bit on the timing of the model and I managed to solve some of its issues. I can find a perfect foresight solution and convergence and my IRFs make sense. However I still get these warnings about Jacobian’s matrix singularity even thought there are no other obvious problems. So my question is: should i trust the results coming out of this deterministic simulation or not? I attach the mod file if helps.

OLG_richpoor_socmob_transition2.mod (15.1 KB)

As long as the solver converges to something sensible, I would not worry about intermediate matrices being close to singular. That can happen.