Short Answer

VS Code ignores your tsconfig.json when you use a newer version of TypeScript than the one that VS Code provides out of the box.

You are using TypeScript 2.0.0-dev.20160707, so that is probably what is happening.

How to use a newer TypeScript version in VS Code

First, install TypeScript into your node_modules. Choose stable or nightly.

npm install typescript --save-dev // stable
npm install typescript@next --save-dev // nightly

Second, add the resultant lib relative path to your settings.json. That is, open settings.json in VS Code via File > Settings > User Settings, and add the following property.

{
  "typescript.tsdk": "node_modules/typescript/lib"
}

Note, if you installed TypeScript globally (-g) instead of into your project’s node_modules, then adjust your typescript.tsdk location appropriately.

Third, make sure you have a valid tsconfig.json. Here is an example.

{
    "compileOnSave": false,
    "compilerOptions": {
        "sourceMap": true,
        "target": "es5",
        "experimentalDecorators": true,
        "noImplicitAny": false
    },
    "exclude": [
        "node_modules"
    ],
    "filesGlob": [
        "src/**/*.ts",
        "test/**/*.ts",
        "typings/index.d.ts"
    ]
}

Documentation

VS Code ships with a recent stable version of TypeScript in the box. If you want to use a newer version of TypeScript, you can define the typescript.tsdk setting (File > Preferences > User/Workspace Settings) pointing to a directory containing the TypeScript tsserver.js and the corresponding lib.*.d.ts files. The directory path can be absolute or relative to the workspace directory. By using a relative path, you can easily share this workspace setting with your team and use the latest TypeScript version (npm install typescript@next). Refer to this blog post for more details on how to install the nightly builds of TypeScript. (emphasis added).

See also: https://blogs.msdn.microsoft.com/typescript/2016/01/28/announcing-typescript-1-8-beta/