Distortionary taxes in financial accelerator model

Dear all,

I am trying to introduce consumption and labor income taxes in the financial accelerator model from Bernanke, Gertler and Gilchrist.
But when I try to run my Dynare file, matlab breaks down and does not start computing.

I get the message:

Configuring Dynare …
[mex] Generalized QZ.
[mex] Sylvester equation solution.
[mex] Kronecker products.
[mex] Sparse kronecker products.
[mex] Bytecode evaluation.
[mex] k-order perturbation solver.
[mex] k-order solution simulation.

Starting Dynare (version 4.1.0).
Starting preprocessing of the model file …
Found 19 equation(s).
Evaluating expressions…done
Computing static model derivatives:

  • order 1
    Computing dynamic model derivatives:
  • order 1
  • order 2
    Processing outputs …done
    Preprocessing completed.
    Starting MATLAB/Octave computing.

And after this nothing happens at all, I can’t work with Matlab anymore, and have to close matlab with the windows task manager. (Matlab runs well with other files - without distortionary taxes)
Does anybody have an explanation for this or any other helpful comment?

Thanks a lot in advance.
All the best
BGG_distortionary_tax.m (9.35 KB)

Please post the *.mod file as well.



Oh, sorry, here is the mod-file
BGG_distortionary_tax.mod (3.43 KB)

Try using

resid(1); steady; check;
after shocks. You will see that the resid(1) command tells you that equations 1 and 14 do not hold with the starting values you provided. As you did not provide starting values, they are set to 0 by default. In case of a linear model like yours, this is absolutely correct. However, as 0 does not solve the two equations, there must be a mistake in them. You can also see this in the output of the steady command which shows you that the steady state is wrong. If you solve these issues, the model should run. Note also that you use an old Dynare version, which may not give you the best feedback. In my case, Dynare 4.1.2 told me

[quote]??? Error using ==> print_info at 36
MJDGGES returns the following error code: 14

instead of simply crashing.

Thanks a lot for the immediate and very helpful answer.
I installed Dynare 4.1.2 and I found my mistake. The file is runnig very well, now.
So thank you for your help!!

All the best