# Dynare examples: NK baseline

**URL:** <https://forum.dynare.org/t/dynare-examples-nk-baseline/26174>\
**Category:** Replication Attempts\
**Created:** [30 July 2024 16:14 UTC](https://forum.dynare.org/t/dynare-examples-nk-baseline/26174 "2024-07-30T16:14:45Z")\
**Posts on this page:** 4\
**Page:** 1

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**Author:** ![deniss](https://forum.dynare.org/letter_avatar_proxy/v4/letter/d/f9ae1b/32.png) [@deniss](https://forum.dynare.org/u/deniss)\
**Post date:** [30 July 2024 16:14 UTC](https://forum.dynare.org/t/dynare-examples-nk-baseline/26174/1 "2024-07-30T16:14:45Z")

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Dear all,

I have been recently looking through **NK\_baseline\_steadystate.m** from stock examples folder.

1. I am a bit confused, how was this expression derived (line 66)?

```auto
%set the parameter gammma1
gammma1=mu_z*mu_I/betta-(1-delta);

```

Why not just setting `gammma1` to an arbitrary number that makes sense?

1. Moreover, given this, am I right to say that return on capital is determined from the FOC w.r.t utilization rate?

Any suggestions would be helpful! Thanks.

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**Author:** ![jpfeifer](https://forum.dynare.org/user_avatar/forum.dynare.org/jpfeifer/32/5044_2.png) [@jpfeifer](https://forum.dynare.org/u/jpfeifer)\
**Post date:** [31 July 2024 08:48 UTC](https://forum.dynare.org/t/dynare-examples-nk-baseline/26174/2 "2024-07-31T08:48:01Z")

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1. This is a steady state condition that utilization is normalized to 1 in steady state. If you were to set an arbitrary number that would not be true anymore.
2. No, the return to capital is determined by the investment and the utilization FOC. Firms rent capital services. You need to know the utilization and the amount of capital to determine the return.

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**Author:** ![deniss](https://forum.dynare.org/letter_avatar_proxy/v4/letter/d/f9ae1b/32.png) [@deniss](https://forum.dynare.org/u/deniss)\
**Post date:** [31 July 2024 16:26 UTC](https://forum.dynare.org/t/dynare-examples-nk-baseline/26174/3 "2024-07-31T16:26:29Z")

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Dear Professor,

Much obliged for your response.  
However, I am still confused how the expression for `gamma1` is derived. Would you be so kind to point at something specific?

Since before I thought that utilization rate `u=1` is just something we treat as given in the steady state, no need for specific normalizations and so on.

Looking forward to your response.

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**Author:** ![jpfeifer](https://forum.dynare.org/user_avatar/forum.dynare.org/jpfeifer/32/5044_2.png) [@jpfeifer](https://forum.dynare.org/u/jpfeifer)\
**Post date:** [1 August 2024 06:08 UTC](https://forum.dynare.org/t/dynare-examples-nk-baseline/26174/4 "2024-08-01T06:08:29Z")

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Have a look at the paper Fernandez-Villaverde/Rubio-Ramirez 2006 - A Baseline DSGE Model underlying the model. On page 24, they derive the condition.