Convert a flexible price model to NK model

General DSGE Modeling Replication Attempts
1

Hi Prof. Pfeifer,
I have a flexible price open economy DSGE model that I want to transform to include price stickness and monetary policy. After adjusting the model equations, I get the following error: Floating point error in bytecode: a/X with X=0.
Could you please help me understand the cause for the error and how to debug.
Here is the original code:
Equations_orig.mod (13.0 KB)
and here is the modified version with sticky price and monetary policy:
Equations_modified.mod (16.5 KB).
Thank you for your help

2

You did only provide the model equations, not a full code that can be run.

3

Here is the model with sticky price and monetary policy:
NK Model.zip (2.1 MB)
The original model can be accessed through this link: Carbon pricing, border adjustment and climate clubs: Options for international cooperation - ScienceDirect. Beside the fatal floating error, I also noticed that dynare created auxiliary variables for capital making the number of equations higher than number of variables even though I declared capital as predetermined and there are no lags higher than 1 in the Model. Thanks!

4

With that zip file, what do I need to do to generate the error message?

5

Please run the file Main.m which is the main matlab file that run and solve the model. The code is attached. Thanks.
NK Model.zip (2.1 MB)

6

The full message was

Floating point error in bytecode: a/X with X=0
      equation 3792
      residual(3792) = (pi_ppi_1_a_t / pi_ppi_2_a_t) - ((PC_1_a_t / PC_2_a_t) * (PC_2_a_t / PC_1_a_t))

You can verify that the initial value for pi_ppi_2_a_t is 0, resulting in the division by 0.
In Dynare with the attached files, you will not get a crash, but a message that the steady state could not be found:
NK Model_6.zip (2.1 MB)

8
  1. That message should not appear in Dynare 6. Are you sure you correctly switched the version?
  2. For a model that size, I can only recommend to either simplify or compute the steady state analytically. That would also provide an important cross-check between equations and steady state.