Dear everyone,

I have been trying to extend a model with human capital and capital and taxation with a second type of consumer. The idea is that to track inequality where the consumers have different human capital.

I have a working with only human capital, capital and taxation however when I extend it I cannot find a steady state. Dynare produces the following error:

Impossible to find the steady state (the sum of square residuals of the static equations is 154.6118). Either the model doesn’t have a steady state,

there are an infinity of steady states, or the guess values are too far from the solution.

Is this problem due to parameter choice or initial values,

or could it be that I wrongly aggregated the two types of consumers.

I’ve attached the original file and the extension below.

EDIT: I’ve found a parameterisation which finds the steady state, however I get an error that the Blanchard-Kahn condition is not satisfied but dynare report 10 forward looking equations and 10 eigenvalues larger than one in modulus. To my knowledge, my model therefore satisfies the conditions. I updated to the new Dynare version. Could someone help me to clarify this?

Any help would be much appreciated.

Steven

2 consumer file

NCTaxWE.mod (2.5 KB)

original model

model10withtax.mod (1.7 KB)