Calvo pricing equation error

Steady state
1

I want to know what is wrong with the calvo pricing of the two types of companies in my model? Why is the residual error of Equation 14 and Equation 21 not 0? Can someone please guide me? gratefulGreen.mod (3.9 KB)

2

Hi wangshiye,

the reason is that you did not give initial values for your variables X_1 and X_2. What Dynare does in that case is to take zero as a starting value. But since you divide by them, this does not work and so it gives you NaN’s.
You have to declare initial values for all endogenous variables, otherwise you can run into problems like these.

3

Thank you so much. I thought I had assigned values to all the variables.