Hello professor,I am trying to implement a consumption equivalent welfare analysis in a model where the fiscal policy parameter will affect the steady-state value.But the question is ,when I compute the steady state, I use some calibrated ratio of the real data, so two parameters of my model depends on other variable’s steady state. I wanna ask, when I analyze the consumption equivalent welfare,should I keep all the parameters fixed, and find the ratio of calibrated variable’s value with the change of fisical policy parameter? Thanks in advance!
That is hard to tell as an external observer. You as the model builder need to decide what type of comparison you want to do. But it sounds like you are picking parameters conditional on the fiscal policy parameter to satisfy a calibration target. In that case, these parameters always change with the fiscal policy parameter.
Got it,thanks professor! I appreciate your help.