Hello everyone,

I have been struggling with a very odd issue. I am working on adding sticky wages to my model, but Dynare seems to get stuck on one of the necessary equations and can’t converge to a steady state with it.

Here’s the part of the code that’s causing the issue. (wh, whn, lh, and ch are logs of wages, new wages, labor and consumption, respectively. chi, phiW, theta and omegaW are parameters of the model.)

```
% exp(whn) = (whb/wha)^(1/(phiW*chi+1));
exp(wh) = exp(lh * chi - theta * ch);
whb = exp(wh * phiW*(1+chi) + lh * (1+chi)) + omegaW * betaH * whb(+1) * (inf(+1)+1)^(phiW*(1+chi));
wha = exp(-theta * ch + phiW * wh + lh) + omegaW * betaH * wha(+1) * (inf(+1)+1)^(phiW-1);
exp(wh * (1-phiW)) = (1 - omegaW) * exp(whn * (1-phiW)) + omegaW * exp(wh(-1) * (1-phiW)) * (inf+1)^(phiW-1);
```

If I set omegaW = 0, line 1 (commented out) should be identical to line 2, if we substitute lines 3-5 into it. However, Dynare won’t run if I use line 1 and comment out line 2. I get the following error message:

SOLVE: maxit has been reached

??? Error using ==> steady_ at 77

STEADY: convergence problems

If I comment out line 1 and use line 2, everything works fine. In order to model sticky wages, I really need line 1, but I don’t understand why the program isn’t accepting it. Has anyone encountered this issue before?

Thank you!