Failure to compute steady state using initval

Steady state
1

Hi Prof,@jpfeifer

I am trying to replicate the basic model in Iacoviello(2005) and introduce shocks to housing demand, productivity and monetary policy. I am using initval to compute the steady state but I keep getting the NaN error. See error message below:

warning: Some of the parameters have no value (epsilon) when using steady. If these parameters are not initialized in a steadystate file steady_state_model-block, Dynare may not be able to solve the model…
Randomize initial guess…

Residuals of the static equations:

Equation number 1 : NaN : 1
Equation number 2 : NaN : 2
Equation number 3 : NaN : 3
Equation number 4 : NaN : 4
Equation number 5 : NaN : 5
Equation number 6 : NaN : w_t
Equation number 7 : NaN : y_t
Equation number 8 : NaN : 8
Equation number 9 : NaN : 9
Equation number 10 : NaN : r_t
Equation number 11 : NaN : pi_t
Equation number 12 : NaN : a_t
Equation number 13 : NaN : j_t
Equation number 14 : NaN : eta_t
Equation number 15 : NaN : 15
Equation number 16 : NaN : l1_t
Equation number 17 : NaN : 17
Equation number 18 : NaN : 18

error: The steady state has NaNs or Inf.
error: called from
print_info at line 32 column 5
steady at line 102 column 5
driver at line 326 column 1
dynare at line 293 column 1

Attached is my mod file, any assistance will be highly appreciated.

prac.mod (1.9 KB)

2

Your model is not linearized. Why do you initialize it with 0?

3

Hi Prof,
I am using a nonlinear model. I used initial values of zero because if one doesn’t explicitly specify a variable then dynare normally uses zero as an initial value when computing steady states. But kindly correct me if my reasoning is flawed.
Thank you.

4

As documented on many occasions that will not work with variables that must not be 0. Take consumption. How is 1/c supposed to work if c=0?

5

I understand.
Would it be better to work with a linear model in this case?

6

No, there the same issue would appear: linearization requires you to have the steady states of the nonlinear model as parameter values.

7

Thank you for your responses.

Could you kindly make suggestions on how to resolve the issue?

8

Set the initial values based on economic intuition. See Remark 15 (initval vs. steady_state_model vs. steadystate-file) in Pfeifer (2013): “A Guide to Specifying Observation Equations for the Estimation of DSGE Models ”.

9

Thank you very much.