Calibration of DSGE model

Steady state
1

Hello everyone,

I have a built a DSGE model, and the code seems to run. However, it is not able to find a SS.

I have tried to look at the residuals and calibrate the model to minimize the value of these, but I cannot quite get it right.

Is there any way to calculate or find appropriate values in the calibration or is it done by qualified guesses?

Best
Frederik

DSGE.mod (4.1 KB)

2

Check your equations. In

Y/Mp = Ac*K(-1)^muc*(Lc^alphac*Lc2^(1-alphac))^(1-muc);

it must be exp(Ac)
as

Ac = rhoAc*Ac(-1)+eAc;

implies that Ac=0 in steady state. Also,

Ac = rhoAh*Ah(-1)+eAh;

looks weird. Shouldn’t it be Ah on the left?

3

Dear Professor,

Thanks for the tip! I have checked my equations, but can’t find a steady state still.
Is the easiest way the solve the model analytically, or how you recommend to proceed from here?

DSGE1.mod (4.0 KB)

4

I think you can check whether you model has an analytical steady-state by trying to solve it. If it doesn’t. Then you will have to start from some baseline model that works. Introduce one feature at a time and find the steady-state by playing with the steady in the previous model. Of course, the new model will not have same steady-state as old model, but will be a little closer…most times if you introduce one feature at a time. I read some paper, they do this iteratively by expanding the model’s features one at a time…because picking initial values to numerically solve the model is not easy.

5

Your model still has mistakes. eR has steady state 0. So

R=rr^(1-rR)*R(-1)^rR*(pi(-1)^(1+rpi)*(Y(-1)/Y)^rY)^(1-rR) * eR;

needs to be

R=rr^(1-rR)*R(-1)^rR*(pi(-1)^(1+rpi)*(Y(-1)/Y)^rY)^(1-rR) * exp(eR);