I’m still fairly new to Matlab and Dynare and having troubles resolving an error with the model I’m trying to build/modify.
My goal is to build a DSGE Model with capital and incorporate a myopic parameter in the style of Gabaix (2017), into the household side.
My starting point for a DSGE model with capital was Smets, Wouters (2007) and I got the latest Dynare Codes modified by J. Pfeifer from GitHub: https://github.com/JohannesPfeifer/DSGE_mod/blob/master/Smets_Wouters_2007/Smets_Wouters_2007_45.mod
when running my modified model code, I will get the following error message:
Error using print_info (line 42)
Blanchard Kahn conditions are not satisfied: no stable equilibrium
Error in stoch_simul (line 100)
print_info(info, options_.noprint, options_);
Error in BrNK_SW07 (line 399)
info = stoch_simul(var_list_);
Error in dynare (line 235)
My code differs from the original in the following ways:
- Got rid of the labobs variables since I’m not interested in estimating the model
- For the start, I also set habit formation and capital accumulation cost to 0 (or almost zero).
- Wages set to be flexible
- The whole “flexible economy” is excluded from the model part for reasons of simplicity
- Without the flexible economy, I had to modify the Taylor rule slightly; from output gap to steady state output
- only monetary policy shock is active
Everything else is kept like in the original code. The code so far is working and produces satisfying impulse responses. But I have not yet incorporated the myopic parameter I want to implement. If I do implement Myopia (M) into the Consumption Euler Equation and set it to < 0.95 the error message mentioned above will appear. This strikes me since I’m only changing a fixed Parameter. There has to be something wrong with the timing in guess but so far I’ve tried to write some equations backward in time and had no progress so far.
Would be very much appreciated if someone can point out some problems of the code or the general setup.
Here is the full model-code I’m currently using: