Non-convergence to the steady state

[alfredoMX]

Hi everybody,

Basiclally, the quiestion is if it´s possible, that the IRFs of some variables in a model don´t return to the steady state, but that they reach a new value of steady state.

In my model (attached) I want to define saving policy for the government´s oil revenue. What im doing is a basic RBC model (no capital, just labor tecnology function) of a small economy (interest rate (r) is given). Just the government has acces to capital markets (the representative agent can not save).

The IRFs that result from this excesise give me that after a shock of one stantad deviation in the government´s oil revenues (IP) the savings an the consumption reach a new level of stady state.

I atteched to this post a one page siple and brief explanation of my model and the mode file, hopinmg that soebody can help me.

Thank you all in advance.

[jpfeifer]

Yes, if your model has a unit root. Try the

Code: Select all

check;

command to see whether one eigenvalue has modulus one.

[alfredoMX]

Dear Johannes, thank you for your reply, you´re alwas very helpfull.

After cheking the unit roots in my model and reading the different posts refering to the recurrent concerns about this topic

viewtopic.php?f=1&t=5982
viewtopic.php?f=1&t=2988
viewtopic.php?f=1&t=4354

a second question derives... In terms of give a policy recomendation (acording to the IRFs) I can say that, given a shock in my stochastic varible (in this case oil revenues),the response of the varible of interest ( in this case the government oil savings) sould be a permanent deviation (from the old steady state) to the new level indicated by the IRF. BUT! this is not a new value of steady state for the variable of interest . This new level shown in the IRF could be one out of many posible levels of steady state.Is my understanding that everything is going to depend on the initial conditions. Am I rigth?

Thank you in advance.

[jpfeifer]

The IRF, even if permanent, shows you the movement from the initial point. If the response is permanent, you move from the initial steady state to a new steady state given by the change implied by the IRF. Of course, when there are other shocks, there are other steady states associated with these different shocks/shock values, but there is not necessarily multiplicity of steady states for given values of the state variables (endogenous and exogenous).