Remove premium on domestic government bond interest rates and change Taylor rule.

mod/common/calibration.inc

@@ -8,7 +8,6 @@ GAMMANBAR=0.985;
 ng=0.75;
 vartheta=2;
 shfr=0.2;
-gammab=0.001;
 gammabw=0.001;
 phi2=0.1;
 tauo=0;

mod/common/endogenous-variables.inc

@@ -27,8 +27,10 @@ KP
 GAMMAPRC
 GAMMAPRI
 GAMMABW
-GAMMAB
-REFF
+YDZE
+YDRZE
+PIZE
+PIRZE
 GAMMAC
 GAMMAI
 GAMMAU

mod/common/mars_steadystate.source

@@ -14,7 +14,6 @@ GAMMAI=0;
 GAMMAU=0;
 COSTI=0;
 GAMMABW=0;
-GAMMAB=0;
 GAMMAX=0;
 GAMMAPRC=0;
 GAMMAPRI=0;
@@ -38,10 +37,12 @@ ZETAI=ZETAIBAR;
 
 A=Z^(1-alpha)*MU^(-alpha);
 R=PI*Z/beta;
-REFF=R;
 RW=R;
 PIW=PI;
 
+PIZE=PI;
+PIRZE=PI;
+
 EXBW=0;
 TB=0;
 DELTAEX=1;
@@ -147,6 +148,10 @@ KOYDBAR= (nk^(1/epsk)*KPOYDBAR^((epsk-1)/epsk)+(1-nk)^(1/epsk)*KGOYDBAR^((epsk-1
 MC=(1/(1-alpha))^(1-alpha)*(1/alpha)^alpha*((1+TAUWF)*W)^(1-alpha)*RENTK^alpha*(KPOYDBAR/(nk*KOYDBAR))^(alpha/epsk);
 YD = (A/Z*KOYDBAR^alpha*LD^(1-alpha)/(1+phiOyd))^(1/(1-alpha));
 
+YDRZE=YD;
+YDZE=YD;
+
+
 KG = KGOYDBAR*YD;
 KP = KPOYDBAR*YD;
 K  = KOYDBAR*YD;

mod/common/model.inc

@@ -15,9 +15,7 @@ C=(1-omega)*CR+omega*CNR;
 % Intra-households tranfers
 iota*TNR=(1-iota)*TR;
 % Euler equation for domestic public bonds 
-LAMBDA=(1-GAMMAB)*beta*LAMBDA(+1)/Z(+1)*R/PI(+1);
-% Endogenous risk premium on domestic bonds
-GAMMAB=gammab*(XIB^(1/gammab)*exp(EXBW/YD)-1);
+LAMBDA=beta*LAMBDA(+1)/Z(+1)*R/PI(+1);
 % Euler equation for foreign public bonds 
 LAMBDA=beta*LAMBDA(+1)/Z(+1)*RW*(1-GAMMABW)/PI(+1)*DELTAEX(+1);
 % External financial intermediation premium
@@ -29,8 +27,6 @@ F1=F2;
 % Wage dynamics 
 1=thetaw*(PI(-1)^chiw*PIBAR^(1-chiw)/PI)^(1-EPSW)*(W(-1)/(W*Z))^(1-EPSW)+(1-thetaw)*(WSTAR/W)^(1-EPSW);
 
-REFF=(1-GAMMAB)*R;
-
 %%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%
 % PRIVATE PHYSICAL CAPITAL 
 %%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%
@@ -52,13 +48,13 @@ GAMMA=OMEGABAR*(1-F)+G;
 GAMMAPR=(1-F);
 GPR=(OMEGABAR*normpdf((log(OMEGABAR)+SIGMA(-1)^2/2)/SIGMA(-1))/OMEGABAR/SIGMA(-1));
 % FOC for capital
-0=(1-GAMMA(+1))*RK(+1)/REFF+GAMMAPR(+1)/(GAMMAPR(+1)-mu*GPR(+1))*(RK(+1)/REFF*(GAMMA(+1)-mu*G(+1))-1);	
+0=(1-GAMMA(+1))*RK(+1)/R+GAMMAPR(+1)/(GAMMAPR(+1)-mu*GPR(+1))*(RK(+1)/R*(GAMMA(+1)-mu*G(+1))-1);	
 % Return of entrepreneurs
 RK=PI/(Z*MU)*((1-delta)*Q+(RENTK*U-PIOP*GAMMAU)*(1-tauk)+PIOP*delta*tauk)/Q(-1);
 % Zero profit condition
-Q(-1)*KP(-1)*(RK)*((1-mu)*G+OMEGABAR*(1-F))/(N(-1)*REFF(-1))-Q(-1)*KP(-1)/N(-1)+1=0;
+Q(-1)*KP(-1)*(RK)*((1-mu)*G+OMEGABAR*(1-F))/(N(-1)*R(-1))-Q(-1)*KP(-1)/N(-1)+1=0;
 % Law of motion of net worth
-N=GAMMAN/(PI*Z)*(RK-REFF(-1)-mu*G*(RK))*KP(-1)*Q(-1)+we+GAMMAN*(REFF(-1))*N(-1)/(PI*Z);
+N=GAMMAN/(PI*Z)*(RK-R(-1)-mu*G*(RK))*KP(-1)*Q(-1)+we+GAMMAN*(R(-1))*N(-1)/(PI*Z);
 
 %%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%
 % INTERMEDIATE GOODS PRODUCERS
@@ -133,12 +129,17 @@ GAMMAPRI=gammai*(XIM^(-1/gammai)*(IM/I)/(IM(-1)/I(-1))-1)*(XIM^(-1/gammai)*1/I/(
 % PUBLIC AUTHORITIES
 %%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%
 
+PIRZE=PIRZE(-1)^rhopirze*PIBAR^(1-rhopirze)*(PI/PIBAR)^rhopi;
+YDRZE=YDRZE(-1)^rhoydrze*steady_state(YDRZE)^(1-rhoydrze)*(YD/steady_state(YD))^rhoyd;
+PIZE=PI^shfr*PIRZE^(1-shfr);
+YDZE=YD^shfr*YDRZE^(1-shfr);
+
 % Taylor rule
-R/steady_state(R)=(R(-1)/steady_state(R))^rhor*((PI/PIBAR)^(shfr*gammapi)*(YD/YD(-1))^(shfr*gammay))^(1-rhor)*exp(XIR);
+R/steady_state(R)=(R(-1)/steady_state(R))^rhor*((PIZE/PIBAR)^(gammapi)*(YDZE/YDZE(-1))^(gammay))^(1-rhor)*exp(XIR);
 % Government budget constraint
-B=GC/YD+GI/YD+T/YD+OTHGOV/YD+(1-GAMMAB)*R(-1)*B(-1)*YD(-1)/(PI*YD*Z)-tauk*(U*RENTK-PIOP*(GAMMAU+delta))*KP(-1)/(YD*Z*MU)-(TAUN+TAUWH+TAUWF)*W*LD/YD-TAUC*PCOP*C/YD-TAULS/YD;
+B=GC/YD+GI/YD+T/YD+OTHGOV/YD+R(-1)*B(-1)*YD(-1)/(PI*YD*Z)-tauk*(U*RENTK-PIOP*(GAMMAU+delta))*KP(-1)/(YD*Z*MU)-(TAUN+TAUWH+TAUWF)*W*LD/YD-TAUC*PCOP*C/YD-TAULS/YD;
 REVGDP = tauk*(U*RENTK-PIOP*(GAMMAU+delta))*KP(-1)/(YD*Z*MU)+(TAUN+TAUWH+TAUWF)*W*LD/YD+TAUC*PCOP*C/YD+TAULS/YD;
-TOTGOVGDP = GC/YD+GI/YD+T/YD+OTHGOV/YD+((1-GAMMAB)*R(-1)-1)*B(-1)*YD(-1)/(PI*YD*Z);
+TOTGOVGDP = GC/YD+GI/YD+T/YD+OTHGOV/YD+(R(-1)-1)*B(-1)*YD(-1)/(PI*YD*Z);
 GOVGDP = GC/YD+GI/YD+T/YD+OTHGOV/YD;
 BALGDP = REVGDP - TOTGOVGDP;
 PRIMBALGDP = REVGDP - GOVGDP;

mod/common/parameters.inc

@@ -29,7 +29,6 @@ ZETAIBAR
 GAMMANBAR
 QKONBAR
 shfr
-gammab
 gammabw
 phi2
 tauo
@@ -73,6 +72,10 @@ gammapi $\gamma_{\pi}$ (long_name='Monetary policy weight on inflation', measure
 gammay $\gamma_{y}$ (long_name='Monetary policy weight on output growth', measure='economic param')
 FBAR $F(\omega)$ (long_name='Steady state probability of default', measure='economic param')
 
+rhopirze
+rhoydrze
+rhoyd
+rhopi
 rhotauc $\rho_{\tau c}$ (long_name='Autocorrelation, tax rate on consumption shock', measure='shock')
 rhotaun $\rho_{\tau n}$ (long_name='Autocorrelation, tax rate on labour income shock', measure='shock')
 rhotauwh $\rho_{\tau wh}$ (long_name='Autocorrelation, contribution rate to social security by employees', measure='shock')

mod/common/values-for-estimated-parameters.inc

-omegam = 0.449674;
-epsw = 0.01;
-epsc = 1.248917;
-epsi = 1.370181;
-gammac = 1.110787;
-gammai = 1.697801;
-gammapi = 1.732484;
-gammay = 0.895491;
-
 omega = 0.686049;
 iota = 0.498892;
 epsk = 0.811827;
@@ -20,8 +11,20 @@ chiw = 0.533563;
 chip = 0.571717;
 chix = 0.320729;
 chim = 0.767567;
+omegam = 0.149674;
+epsc = 1.248917;
+epsi = 1.370181;
+epsw = 1.769773;
 kappa = 5.009242;
+gammac = 1.110787;
+gammai = 1.697801;
+gammapi = 1.732484;
+gammay = 0.895491;
 FBAR = 0.009991;
+rhopirze = 0.8;
+rhoydrze = 0.8;
+rhoyd = 0.6;
+rhopi = 0.6;
 rhotauc = 0.926178;
 rhotaun = 0.918729;
 rhotauwh = 0.966294;

mod/mars-simul/mars.mod

@@ -21,5 +21,5 @@ steady;
 
 check;
 
-stoch_simul(order=1,irf=100) YD C I LD W PI R B GC EXBW GAMMAB M X RW GAMMABW REFF MC;
+stoch_simul(order=1,irf=100) YD C I LD W PI R B GC EXBW M X RW GAMMABW MC;