Calibration of DSGE model

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?


DSGE.mod (4.1 KB)

Check your equations. In

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

it must be exp(Ac)

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?

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)

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.

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);