Dear Forum,
I am trying to adapt the forward guidance example provided by @jpfeifer here: DSGE_mod/NK_linear_forward_guidance at master · JohannesPfeifer/DSGE_mod · GitHub
I am using a simple nonlinear NK model with price rigidity. Unfortunately I am getting error when I run the file. The error is related to ‘Warning: Matrix is singular to working precision’. Can you please provide some idea about what is wrong here?
nk.mod (2.6 KB)
distance.m (1.8 KB)
I played around with some shock values and it seems there is an asymptote arising. Are you sure there is a solution?
Dear Prof. Pfeifer,
Thank you very much for your support.
When you mention ‘solution’, did you mean solution specific to the forward guidance problem?
here, I have attached a perfect foresight simulation with interest rate shock of value 0.01 in first period. The solution looks normal to me. Thus in this context, I fail to understand the ‘asymptote’. can you please elaborate on that?
nk.mod (2.7 KB)
I meant a solution to the particular forward guidance problem.
Use a shock in just period 4:
x=[0,0,0,0.01]';
shocks;
var e_r;
periods 1:4;
values (x);
end;
perfect_foresight_setup(periods=100);
perfect_foresight_solver;
rplot i_m;
to see
When you try to set shocks to prevent these oscillations, the problem becomes worse.
