Hi all,
I have written the code from Adam (2011) - "Government debt and optimal monetary and fiscal policy" in Dynare and used the deterministic simulation to solve it. After letting it run the code seems to be converging as
MODEL SIMULATION :
Total time of simulation :0.07
Convergency obtained.
However, the debt stock decreases continuously and jumps in the last period. In that period, the equations do not sum to 0 as imposed by the model.
To be precise just use the following commands:
c=oo_.endo_simul(2,:);
pi=oo_.endo_simul(3,:);
h=oo_.endo_simul(4,:);
b=oo_.endo_simul(5,:);
R=oo_.endo_simul(6,:);
tau=oo_.endo_simul(7,:);
g=oo_.endo_simul(8,:);
uc = 1./c;
uh = -omegah*h.^phi;
figure
plot(b)
and when evaluating the budget constraint at the second last and the very last (basically the endpoint) one gets completely different results:
resid_last=b(end) -(tau(end)/(1-tau(end)))*(uh(end)/uc(end))*h(end)-g(end)-R(end-1)*b(end-1)/pi(end);
resid_2nd_last=b(end-1) -(tau(end-1)/(1-tau(end-1)))*(uh(end-1)/uc(end-1))*h(end-1)-g(end-1)-R(end-1-1)*b(end-1-1)/pi(end-1);
Does that mean the code did not converge or am I interpreting something wrong here?
Thanks in advance!
For those not familiar with the paper, it is a standard NKM with optimal fiscal and monetary policy.