Error msg when changing some parameters of the original code, Gerali (2010)

Steady state
1

Hi, I have a working code file that I got from macro model database. I am very new to Dynare/Matlab so I am not quite in the position to write the entire code myself, so I am using the replication file I got from MMB (Gerali et al. 2010), and try to apply the model to a different country by using different data and changing parameters.

When I tried to change some of the parameters to fit the data for a different country (than the country that the paper was originally written for), I get this error message.

Warning: Matrix is singular to working precision. 


Error using print_info (line 32)
Impossible to find the steady state (the sum of square residuals of
the static equations is 732508004187.1006). Either the model doesn't
have a steady state, there are an infinity of steady states, or the
guess values are too far from the solution

Even changing a discount factor slightly causes this problem, so I am wondering if I were to make changes to the original parameters, I will also have to make changes in the other parts of the code?

The model uses Bayesian… and the paper states that parameter values are set at the estimated posterior median (but I did not change any of these structural parameter values such as AR(1) coefficients, adjustment cost, taylor rule coefficients…). I am only changing parameters such as discount factors, target capital-to-loan ratio, HH LTV ratios, and such just to better reflect the country I am applying this model to.

I am wondering why SS cannot be found?

The model also specifies initval before steady; does changing the parameters also has implications on how the initval should be specified?

I would really really appreciate any help!

2

Big models like that are tricky to work with. The initval-block was tailored to their parameter values. When changing parameters, the steady state will change and the initial values are not sufficiently close to deal with that. For that reason, you may have to work with an analytical steady state.

3

Is there a way to readjust the initval ? so that it is close to SS and the code might run?
and by “working with an analylitical steady state” you mean I should write out equations (no time subscript) in the initval block?

4
  1. You can of course adjust the initial values. The challenge is to come up with better values when you don’t know the true steady state.
  2. An analytic steady state involves computing all the values explicitly with pencil and paper.