Hello, Dynare community. I am working a three-agent NK model (3 household groups) with consumption taxes and labor income taxes for my dissertation. Motivated by the GST Reforms 2.0 and Income Tax Act 2025 in India, I am trying to incorporate differential tax shocks (tax rate reduction of different magnitudes to each household group).
My IRFs are showing unusual spikes. I initially thought it might be due to setting high persistence (0.999) of tax shocks but it is still showing strange spikes with other transitory shocks (productivity, monetary policy, etc.). It feels like there is some issue with the Taylor rule or some timing error. But I am unable to point out the mistake. I am reaching out for some help on this. I am attaching the code here. I would be grateful to receive some helpful suggestions.
Thank you!
@jpfeifer Sincerely requesting for your valuable suggestions as well.
THRANK_withtax.mod (3.7 KB)