Good afternoon,

I’m running a file based in the Jermann and Quadrini (2012) model to compute the macroeconomic effects of financial shocks. There are two shocks in this model: a productivity and a financial shock. When I run the simulation including the two shocks simultaneously (set: “shocks; var ez = 1; var exi = 1; end;”) everything goes fine, but when I do it to simulate the without shocks (var ez = 0; var exi = 0), the following message is reported in the output:

"AUTOCORRELATION OF SIMULATED VARIABLES

??? Error using ==> ones

NaN and Inf not allowed.

Error in ==> dyntable at 58

hh = hh char(32*ones(1,hlb)) deblank(headers(i,:)) …

Error in ==> disp_moments at 97

dyntable(title,headers,labels,autocorr,size(labels,2)+2,8,4);

Error in ==> stoch_simul at 154

disp_moments(oo_.endo_simul,var_list);

Error in ==> model0 at 190

info = stoch_simul(var_list_);

Error in ==> dynare at 120

evalin(‘base’,fname) ; "

I’ve already checked the residuals of the model to see if the initial values are correct, and the values are quite close to zero, so I think that it is not a problem in the specification of the equations:

Residuals of the static equations:

Equation number 1 : 0

Equation number 2 : 0

Equation number 3 : 0

Equation number 4 : 3.9724e-005

Equation number 5 : -0.00011285

Equation number 6 : -4.1724e-005

Equation number 7 : 5.3124e-005

Equation number 8 : -5.3029e-005

Equation number 9 : 4.5273e-006

Equation number 10 : 2.7958e-005

Equation number 11 : -4.8988e-005

Equation number 12 : -1.095e-005

Equation number 13 : 2.2356e-006

I would be very grateful if anyone can help me to identify what is the problem behind this. What I really want to know is what is wrong with my model and what can I do to simulate the model without the shocks. Thank very much in advance for your help, I’m a little desperate!

Best regards,

Erica

PS: I attached the mod.file for a closer inspection

model0.mod (1.76 KB)