Dear all,
I encountered a question when I was calculating the steady state of a model incorporating capital utilization. I notice that most of the model having capital utilization setup naturally assume that its steady state value is 1. Does that mean one other parameter cannot be calibrated and need to be determined by the steady state of capital utilization and other parameters?
Thanks for your reply!
Yes, that is indeed the case. Often, people use a quadratic form like \delta(u)=\delta_0+\delta_1(u-1)+\frac{\delta_2}{2}(u-1)^2. Here, \delta_1 must be chosen to obtain the desired steady state, while \delta_2 is the “free” parameter.
Dear Prof. jpfeifer,
Thanks for your helpful advice!
In my model I externally calibrate \delta1 but somehow enables the steady state block to work. Actually the model is exactly the same one in topic BK condition not satisfied- already checked the taylor rule parameters and timing issue . I was wondering if this error in calibration may induce the BK condition not satisfied?
That may happen. The easiest way to check is to simply disable this feature of the model.
Problem solved! Thank you for your generous help!