Tolf-option in perfect foresight solver

Perfect foresight simulations
1

Dear Forum,

I have a question related to the tolf option applied within the perfect foresight solver. It seems that I can only run my simulation (which involves a strong permanent policy shock) if I set tolf=1e-2. Now my question is: how can I test whether this is appropriate. My first guess is to look at steady state values of the model. If they are a greater order of magnitude than 1e-2 the convergence criterion should be ok. Is that correct? If not, what are the alternatives?

Thank you!
Kind Regards

2

It’s not sufficient for the steady state values to be larger. Also the difference between the steady state should be larger. Otherwise, you would say that the model has succesfully converged to the new steady state even if it never leaves the old steady state.

3

Dear Prof. Pfeifer,

that makes sense. Thank you!

Best