When I run the attached .mod file Model2.mod, with a steady_state_model block, Dynare computes the steady state with no problem. When I replace the steady_state_model block with an initval block in file Model1.mod, with the exact values produced from Model2, I get a “trends not compatible with balanced growth path” error. I tried increasing the balanced_growth_test_tol parameter but that didn’t help. I am wondering why Model1 is getting this error.

The background is that I am working with a tiny generalization of a well-tested model, involving a parameter called “tau.” The original model assumes tau=1. I am trying to solve the model with tau<1. In that case I am getting a failure to find the steady state using steady_state_model (even though I can solve the steady state model directly). So I thought I would try using initval instead, but ran into this “trends not compatible” issue even with tau=1. Why the tau<1 case isn’t working is a deeper mystery, but I don’t expect help with that unless it’s something obvious. The two attached files both have tau=1.

Model1.mod (6.3 KB)

Model2.mod (6.5 KB)