Converting Salter-Swann Micro Founded Model to an DSGE Model


Reviving the Salter-Swan small open economy model.pdf (1.4 MB)

I am trying to convert the attached micro-founded Salter-Swan model framework to a DSGE model that would allow me to investigate the existence of the Dutch Disease effect through exogenous terms of trade shock.

To the best of my attempts, I have arrived at the below code.

TestNovember.mod (2.0 KB)

I understand that this is probably incomplete and wrong as it doesn’t currently compute the steady state. Giving the below error:

Error using print_info
Impossible to find the steady state (the sum of squared residuals of the static equations is 356.6502). Either the model doesn’t
have a steady state, there are an infinity of steady states, or the guess values are too far from the solution

Error in stoch_simul (line 120)

  • print_info(info, options_.noprint, options_);*

Error in TestNovember.driver (line 254)
[info, oo_, options_, M_] = stoch_simul(M_, options_, oo_, var_list_);

Error in dynare (line 281)
evalin(‘base’,[fname ‘.driver’]);

As I am new to the topic of DSGE models I would appreciate any direction or suggestions.

Thank you!

You need to provide initial values for steady state finding. Most variables cannot be 0 (the default Dynare uses).