I am working on Iacoviello (2017), “Collateral Constraints and Macroeconomic Asymmetries,” and try to add a search and matching mechanism on to the impatient households (which also act as entrepreneurs/managers in Iacoviello’s model). The search and matching mechanism I adopted is a very simple one (pls see the attached), so I add 5 new endogenous variables and treat the wage of impatient households (variable w1) as a parameter. The first six equations in the model module in my Dynare core is what I added on. Due to the nonlinear equations, I could not compute the analytical steady state manually, so I turn to the initval value strategy. But the Dynare core ends up with ‘Impossible to find the steady state. Either the model doesn’t have a unique steady state of the guess values are too far from the solution’. I have tried different timing for predetermined variables and different starting values for steady states but still couldn’t solve it. I know the reason behind might be complicated. Most starting values stay the same with those in Iacoviello (2017), as I think I do not change too much. Does someone have an idea how to overcome this problem?matchingmodelp.pdf (86.6 KB) my work.mod (6.3 KB) Replication code from Iacoviello’s website.zip (6.1 KB)
I appreciate any help that you can provide.