I want to replicate the paper written by Devereux/Yetman 2010“Leverage constraints and the international transmission of shocks”I find Dynare can not return steady state for me. In an open economy, both countries have investors, savers and firms. Investors can invest international (both firms in home and foreign). It seems there is indeterminacy of asset allocation because in steady r1=r2 and the value of k1i(invest in home) and k2i(in foreign) can not be determined. According to the paper,the only way would be to use the Devereux/Sutherland algorithm.

1.Steady state: as the paper said, it gives 23 equations in 22 variables do I need to get the steady state of other 18 variables except k1i k2i k1i_star k2i_star(star refers to foreign)

2.Log-linear: DS algorithm use a special way to the initial budget constraint .A problem about Log-linear, do I need to change the initial one equation to the next five equations, if so the steady state of NFA and r_xt are 0, and from the steady state k_1t^I and k_2t^I are unkown, how to do log-linear?? I am not sure variables in the new model.

I am new to DSGE, any help many thanks!

Hi, have you solved this problem now?