It took me some time, but I finally managed to run a basic RBC with frictions in the labor market. Since I faced many problems with my previous model, I rebuilt my entire code. I decided to log-linearize my model in order to obtain the dynamics of the endogenous variables in percentage deviations. Another issue which kept me from running my program was the wrong timing of the stock variables. In this post [Error messages) MichelJuillard commented that the wrong timing of stock variables is a frequent problem, which turned out to be also a problem in my code.
I endogenized the real interest rate r by allowing for bonds in the budget constraint of the household. But to keep things simple, I also assumed that these bonds are in zero net supply in order to avoid non-stationarity of the debt process. This feature would be present without a debt elastic interest rate or any other mechanism which would ensure stationarity (compare to chapter 4.10 of Martin Uribe and Stephanie Schmitt-Grohe’s book “Open Economy Macroeconomics”). Incorporating such a mechanism would be add odds with the goal of building a baseline version.
Thank you very much for help! I really appreciate your help and the existence of this forum. Your “Guide to Specifying Observation Equations for the Estimation of DSGE Models” was also very useful for writing the Dynare code. In case it might be someone interested, please find attached the mod-file.
/Edit: Note that I have assumed a negative productivity shock. To obtain a positive one, simply write “a = crhoa(-1) + e;" instead of "a = crhoa(-1) - e;”
rbc_with_labor_market_frictions.mod (3.09 KB)