How to find steady state in two-country multi-good model

Steady state
1

To whom it may concern,
I am replicating a two country international real business cycle model (Heathcote and Perri 2002-bond economy) and using some new parameters. I cannot find the steady state using dynare and I do not know how to find steady state values. Could you please tell me how to do it?

The dynare code is attached.
HP.mod (6.2 KB)

2

First of all, initialize all variables in initval. Then put resid before steady to see the problematic equations with big residuals.

1 Like
3

Thanks for your reply. But my problem is, dynare shows my steady state value contains NaN or Inf. But I cannot find my mistakes. And I do not know how to adjust initial values. Is anyone familiar with multi-good two country model? How to decide the initial values???

4

As I said, initialize all variables. If you do not set a variable, it is taken to be 0, often resulting in NaN or Inf if you take the log or divide by it.

5

May I ask when you say initialize all variables, what numbers we usually put in? Or we should calculate them? Many thanks!

6

Ideally you should calculate them. But if that is possible, go for sensible values. Concepts like output and consumption must be positive. Also, output is usually bigger than investment and consumption.

7

Thanks for your reply. This question may be naive. What does big residuals mean? After we found the functions with big residuals, should we adjust the guess values or modify our equations?

8

If your initial and equations are correct, you have a steady state and all equations hold with equality. If they do not hold, because initial values are poor or equations are wrong, you will see residuals. The bigger they are, the more problematic are the initial values given the entered equation. Very big residuals often indicate a mistake in the equation or a really poor initial value.