I am not able to guess correct initial values for the steady state. Equations are complex, as you can see on the mod and model files.
Do I need to apply log linearization and solve for the steady state afterwards?
I highly appreciate your advice.
StEx3.mod (2.5 KB)
model.pdf (165.6 KB)
Your initial guess does not make sense. As Dynare says
resid: The initial values for the steady state of the following variables are complex:
The reason is that L=3, although it needs to be between 0 and 1.
Linearization will not help. To linearize a model around its steady state, you need to compute the steady state in the first place.
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?
This is not about adding such a restriction, but about you providing initial values that violate such a restriction implied by the model
Thanks, it was very helpful. I was able to calculate the steady state with the right initial values. Now I am getting “Blanchard Kahn conditions are not satisfied: indeterminacy” error. Will try to figure out the problem.
Now I am getting the following error (the mod file is attached):
“There are 3 eigenvalue(s) larger than 1 in modulus
for 2 forward-looking variable(s)
The rank condition ISN’T verified!
MODEL_DIAGNOSTICS: No obvious problems with this mod-file were detected.”
I use suggested Dynare timing convention for capital.
Your help is greatly appreciated.
StEx4.mod (2.5 KB)
In this case, only the total capital stock k is predetermined. Hence, you have to use a law of motion for capital
k = (1-delta)*k(-1) + i
The total capital stock in the economy k(-1), which was decided by investment in the period before (hence the (-1) timing), can be freely divided between the individual sectors. Hence, kT and kN are determined at time t and not predetermined (normal variables). The corresponding resource constraint thus reads
k(-1) = kT + kN
Thanks, did not see that. It works now.