# Epstein Zin preferences and asset pricing

**URL:** https://forum.dynare.org/t/epstein-zin-preferences-and-asset-pricing/5748
**Category:** Stochastic simulations
**Created:** [31 August 2016 07:51 UTC](https://forum.dynare.org/t/epstein-zin-preferences-and-asset-pricing/5748 "2016-08-31T07:51:00Z")
**Posts on this page:** 3
**Page:** 1

<div class="post-metadata">

### Author: ![georam11](https://forum.dynare.org/letter_avatar_proxy/v4/letter/g/9d8465/32.png) [@georam11](https://forum.dynare.org/u/georam11)
#### Post date: [31 August 2016 07:51 UTC](https://forum.dynare.org/t/epstein-zin-preferences-and-asset-pricing/5748/1 "2016-08-31T07:51:00Z")

</div>

Hello All,

I am a beginner in Dynare. I would like to use Dynare for a basic optimisation problem in asset pricing with epstein zin preferences. I have referred to [github.com/JohannesPfeifer/DSGE … 2.mod#L124](https://github.com/JohannesPfeifer/DSGE_mod/blob/master/Caldara_et_al_2012/Caldara_et_al_2012.mod#L124) while building the codes (with some changes as I would like to get the stock return instead of return to capital). I have referred to Kung and Schmid (2015) for to build this basic model version.

I have not included the Euler equation as Kung and Schmid (2015) does not include the same in the equilibrium conditions. Do you think this is what is causing the problem?

When I run the file to solve the model, i get the following error message. Please could you help to see if there is something wrong in my code?

Configuring Dynare …  
[mex] Generalized QZ.  
[mex] Sylvester equation solution.  
[mex] Kronecker products.  
[mex] Sparse kronecker products.  
[mex] Local state space iteration (second order).  
[mex] Bytecode evaluation.  
[mex] k-order perturbation solver.  
[mex] k-order solution simulation.  
[mex] Quasi Monte-Carlo sequence (Sobol).  
[mex] Markov Switching SBVAR.

Starting Dynare (version 4.4.3).  
Starting preprocessing of the model file …  
Found 14 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.

Residuals of the static equations:

Equation number 1 : 0  
Equation number 2 : 0  
Equation number 3 : 0  
Equation number 4 : 0  
Equation number 5 : 0  
Equation number 6 : 1.0005  
Equation number 7 : 0  
Equation number 8 : 0  
Equation number 9 : 0  
Equation number 10 : 0  
Equation number 11 : 0  
Equation number 12 : 0  
Equation number 13 : 0  
Equation number 14 : 0

??? Error using ==\> print\_info at 72  
The steadystate file did not compute the steady state

Error in ==\> resid at 112  
print\_info(info,options\_.noprint, options\_)

Error in ==\> steady at 90  
resid;

Error in ==\> epsteinzin at 158  
steady;

Error in ==\> dynare at 180  
evalin(‘base’,fname) ;

Best,  
Ammu

---

<div class="post-metadata">

### 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 August 2016 12:03 UTC](https://forum.dynare.org/t/epstein-zin-preferences-and-asset-pricing/5748/2 "2016-08-31T12:03:56Z")

</div>

Your steady state for k should be

`k=((1/beta-(1-delta))/alpha)^(1/(alpha-1))*lab;
`

---

<div class="post-metadata">

### Author: ![georam11](https://forum.dynare.org/letter_avatar_proxy/v4/letter/g/9d8465/32.png) [@georam11](https://forum.dynare.org/u/georam11)
#### Post date: [27 September 2016 05:31 UTC](https://forum.dynare.org/t/epstein-zin-preferences-and-asset-pricing/5748/3 "2016-09-27T05:31:25Z")

</div>

Thank you prof Pfeifer.

I am able to solve the model now.

Best,  
Ammu