Public debt and fiscal rule

Dynare contributions and examples
1

Hello everyone

I create a simple RBC model to see how a fiscal rule (a lump-sum tax) works to stabilize the debt-gdp ratio

However, I check all the timing conditions of my variables and I cannot understand why the rank condition is not verified in my model.

The fiscal rule is very similar to the QUEST model one.

Public_debt_baseline.mod (2.7 KB)

I really appreciate any help you can provide

2

Check whether there is a sign error somewhere as

    T - T(-1) = -0.01*(Debt_ratio - Debt_target);

works

3

Thanks for your answer professor. Applying a negative sign in the first part of the fiscal rule equation, the rank condition is verified. But, could you explain me why I cannont put a fiscal rule as in QUEST?

image

Maybe is a question of introduce lags in other variables? I think that I dont control well the timing in some variables in Dynare

In addition, even if the rank condition is verified, I cannot simul a deterministic TFP shock in my model
Public_debt_baseline.mod (2.9 KB)

4
  1. That is something you need to find out. That is why I said there might be a sign error somewhere like using positive values for B to denote assets instead of debt (or the other way round depending on the convention used).
  2. Regarding the simulation, try using Dynare 4.5 with
simul(periods = 100,robust_lin_solve);
rplot A T B;