# Finn (2000) energy model

Hello everybody,

I am replicating the paper “Perfect Competition and the Effects of Energy Price Increases on Economic Activity”, Finn (2000), and I encounter some problems. If somebody can help me it would be great. I join to this post the dynare code and the derivations. Thank you in advance.

Best,

Moïse
ASSIGNMENT 1.pdf (150 KB)
Finn(2000).mod (1.27 KB)

If you are more specific what the problem is, then it is more likely someone will help.

I ran your model and found out that it doesnt find a steady state. You could start with simplifying the model such that it is more easy to find the steady state. Or you might want to consider if there are infinitely many steady states. For example, price levels can be indeterminate. Then you can normalize the steady state price using the ’ DYNAMIC’ and ’ STATIC’ expressions. (I don’t have that much experience myself with Dynare, but my suggestions should work ).

There must be more. Using the unstable version with

```steady(maxit=1000); ```
I get a steady state, but the Blanchard-Kahn conditions are violated. Most probably a timing problem.

@stp

My problem is that, although I verified many times my equations, I could not find a steady state. I wrote the code by linearizing the model myself and I could run the code. But I want to understand why it is not working the way I wrote, i.e in exp(.).Thank you.

@jpfeifer

Thank you. I tried to add steady(maxit=1000); but it still does not find a steady state. I really do not understand why, I have checked and recheck many times my equations. I posted my code here in case there is a mistake that i do not see. Thank you for your help.

Hi there, Moise_nken did you finally find what went wrong? I’m also trying to replicate Finn’s model, but I encounter an error with dynare “Impossible to find the steady state. Either the model doesn’t have a steady state, there are an infinity of steady states, or the guess values are too far from the solution”. Like you, I have checked several times the steady state by recalculating it by hand, but it still don’t work. finn.mod (2.1 KB)

Why do your model equations look so different from the ones in the first mod-file?

simply because I tried to replicate the model on my own. However, since I can’t find my error (my errors), I tried to search the dynare forum if someone else had tried to do it. That’s why my mod file is different from the first one

I can try to modify my file so that it looks like the previous one

I understand that you tried to do it yourself. But given that both mod-files try to implement the same model, they should in theory be isomorphic. But they look extremely different and only one can be correct. I would suggest you try to find out where the differences come from and who is right.

I am sorry but I only see your answer now 4 years later… I wish I could have simplified the model. But the exercise for me there was to build a simple 2-country model, so I could not make it simpler! Thank you for your advice though. Take care!

Hi Maxime,
Yes I found what was wrong. When you write the capital law of motion you have to write it as in equation (4) in Finn (2000) but with using the definition of delta=(OMEGA0*exp(u_f)^(OMEGA1))/OMEGA1). Dont just write “delta” as in Finn, substitute it by the RHS. I hope it helps. I am sorry I took time. Take cae.
Truly,
Moïse

Dear Johannes, I have rewritten the model exactly as in Finn’s article, detailing all the equations, however I still have the same error message as previously
“impossible to find the steady state. Either the model doesn’t have a steady state, there are an infinity of steady states”
However I have recalculated all the steady state conditions, so I don’t understand where the problem comes from… I attached the “new” .mod filefinn2001.mod (2.5 KB)

Check all equations.

``````    z=rho1*z(-1)+X;
p=zet*p(-1)+Q;
``````

imply those variables have steady state 0. But you did not put e.g. `z` in `exp()` in the production function.
It is also strange that `bet` does not appear in your model.

Many thanks, problems are solved! it runs properly

hello Maxime.B
i am new in Dynare and I am also practicing on Finn (2000) and i have almost same problem
could you explain how to wrote Dynre of Finn or sharing Dynare codes ?
best regards

Hi Moja