Hi all,

I have a silly question. The timing of the interest rate on government debt ® and the rental rate of capital ® in NK_baseline.mod (the replication of Fernandez-Villaverde (2009)), while both government debt and capital are predetermined variables, are different; R(-1) and r in the consumer budget constraint. Thus the FOC,

lambda=betta*lambda(+1)*mu_z(+1)^(-1)/PI(+1)R;*mu_z(+1)^(-1)

q=bettalambda(+1)/lambda

*mu_I(+1)^(-1)*((1-delta)*q(+1)+**r(+1)*

*(u(+1)-1)^2));*

*u(+1)-(gammma1*(u(+1)-1)+gammma2/2The timing difference, is this common to use? This, I think, is problematic when I have fiscal policy in the model. If I add a government budget constraint using the government debt timing on NK_baseline.mod and the original paper, R(-1)*b(-1), this won’t work; the rank condition isn’t verified. When I declared the debt as predetermined variable and use the same timing as the capital, for example,

g + R*b = tax(ld*w+r*k) + b(+1)*PI(+1) + lumpsum;

the Euler equation is now

lambda=betta*lambda(+1)*mu_z(+1)^(-1)/PI(+1)*R(+1);

This, however, is working when the Taylor rule is defined as

R(+1)/Rbar=(R/Rbar)^gammmaR*((PI/PIbar)^gammmaPI*((yd/yd(-1)*mu_z)/exp(LambdaYd))^gammmay)^(1-gammmaR)*exp(epsm);

But, really, the Taylor rule looks really weird with (+1) in it. Do you have any thoughts on this? Did I make any mistake on something? Can you suggest how can I fix this problem? Any comments will be very much appreciated. Thank you!

Note: I let g, tax, and lumpsum as completely exogenous, so the government budget constraint determines debt.