2 Sectors New Keynesian Model

General DSGE Modeling
1

Hello everyone,
do you know any source where I can find codes and/or pdf files showing how to solve a 2 sector model with sticky prices in levels? I managed to solve the flexible price model, but introducing sticky prices creates me a lot of troubles when setting a numeraire.

The best would to have the model as simple as possible (i.e. only labor, no fancy mechanisms).

Thanks to everyone who will be willing to help,
Jacques

2

Which two sectors do you have in mind? And what exactly is the trouble you are facing?

3

Thank you for your reply. They are two simple private sectors, so imagine the standard model but consumers have preferences over a bundle of two goods produced by the two sectors.

The problem is not directly related to Dynare, but more with the economic theory at the basis. I am trying to use the consumer price index (which is defined as an aggregate of the price of the two goods) as the numeraire, but this creates troubles for the firm price setting condition. Hence, I was hoping that some resources could help me clear my mind.

Thanks again for the help

4

Isn’t that a standard problem showing up in practically every NK open economy model?