Finding the steady state

Dear Moderators,

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)

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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)


Thanks, did not see that. It works now.