Steady-states error

Steady state
1

Hello everyone,

I have a problem with a mod file, I’m running a model with debt and discursive taxes and dynare do not solve steady states. I’m almost sure that it is due to the discursive taxe processes because when I fix taxes as constant and I remove the autoregressive process, Dynare is able to find the steady states for my model, therefore my equations should be correct and the error comes from distorsion taxes part.
I attach here my mod file, if someone could help me with this I would be really grateful.
Thanks in advance
Best
Hugo
Simplemodel8bis.mod (3.8 KB)

2

Check all equations. Are you sure

  log(G)=(rho_g)*log(G(-1))-lambda_b*log(Phi/ss_Phi)+e_g;

is correct? It implies a steady state of G=1

3

Dear Mr Pfeifer,

Thanks for your answer, I have corrected this in fact. I have a last question, my results are strongly driven bu the steady state value of G is it normal ? For instance, for debt, low values of G in steady states imply a negative response of debt and high values of G imply a positive answer of debt, I do not see why different steady states values will change the response of debt variable ?
Thanks in advance
Hugo

4

What does the government budget imply for debt in that case? Maybe its steady state switches signs

5

Dear Mr Pfeifer,

Thanks again for your answer, in order to solve this problem, I will provide my own steady-states to dynare, the ones that I have computed in a matlab file. I think that my problem comes from the fact that dynare solves for different steady-states values that the ones that I have found. Can you tell me how I can provide my own steady-states in Dynare ? What is the procedure ? Do you have an example ?
Thanks in advance.
Hugo

6

I am not sure I understand. You can provide analytical steady state values via e.g. a steady_state_model-block. But the point I am making is: the government budget constraint tells you that the difference between the present value of taxes and spending must be covered by the return on the government net asset position. If you change the steady state of spending while keeping taxes the same, you will alter the asset position of the government, e.g. from being a net borrower to a net lender.

7

Dear Mr Pfeifer,

Thanks a lot for these very useful comments. It helps me a lot and now I perfectly see your point.
Again thank you very much.

Hugo

8

Mr Pfeifer,

I come back to the discussion we had last time because I find very problematic the answer I get from a public spendings shock in my model and I don’t understand why, I checked my equations many times and what is very weird is that the answer of all the variables to a shock on public spendings are ok except for debt (B_t). Same for a shock on taxe rate on capital and labor, all variables react in a right way, except for debt. I would expect that a positive shock on G increase B while it is the opposite in my IRFs. Could you please have a quick look at it and tell me your point of view ?
I attach to this message my mod and steady-state file.
Thank you very much in advance for your answer.
Best,
Hugo

Simplemodel10.mod (3.8 KB)

Simplemodel10_steadystate.m (2.0 KB)