I am writing a small model for a SOE with two sectors, where a CES production function in each sector uses labor and energy. I am not interested in the import/extraction part of energy, I’m only interested in seeing how energy taxes affect the steady state.
My question is how to go by entering energy into my code? Would it be easiest to enter the quantity of energy as a parameter?
As always, if it is not time-varying, define it as a parameter.
Thanks a lot! A related issue: I have a couple of consumption taxes and want to simulate the response of certain variables to demand/borrowing shocks for different values of the taxes. But since these taxes are not time varying, they are washed away in log-linearization, and only present in price relationships. Will this be enough? Otherwise, is there some other trick?
They are not washed away. They will usually be influencing the steady states of your model, which depend on the deep parameters like the tax rate. If your linearization is correct, this is all you need.