Dear Professor Pfeifer,
Exactly! In fact, I was wondering if the error message I receive:
[quote]One of the eigenvalues is close to 0/0 (the absolute value of numerator and denominator is smaller than 1e-06!
If you believe that the model has a unique solution you can try to reduce the value of qz_zero_threshold. [/quote]
was precisely due to the “bad local properties” of the solution. Can you confirm this is the right interpretation?
Finally, I was wondering: what are the alternatives I have for bounding this variable?
In a deterministic setting, it seems that an inequality constraint can be implemented as well.
However, as I’m writing in this other post: Inequality constraints in deterministic simulation
this feature is not very well documented in Dynare and it is not clear to me how reliable that is.
PS The variable I am trying to bound, ‘m’, represents the amount of utilized capital which cannot excess the total amount of capital available in the economy.
Also, it is a defining feature of my Ramsey model that this constraint (e.g. m=<1) is occasionally binding.
Therefore I cannot leave it unrestricted.