Thanks a lot Johannes. Apparently, my model lacks non-negativity constraints on L (labor) and K (capital). I know it is not a Dynare related question, but how can add such a restriction?

Thanks, it was very helpful. I was able to calculate the steady state with the right initial values. Now I am getting â€śBlanchard Kahn conditions are not satisfied: indeterminacyâ€ť error. Will try to figure out the problem.

Now I am getting the following error (the mod file is attached):

â€śThere are 3 eigenvalue(s) larger than 1 in modulus
for 2 forward-looking variable(s)
The rank condition ISNâ€™T verified!
MODEL_DIAGNOSTICS: No obvious problems with this mod-file were detected.â€ť

I use suggested Dynare timing convention for capital.