Using dynare how can the following 7 eqautions with 7 unknowns (c, i, y, k, l, w, r) can be solved? Please help.
c (+1)/c= BETA * (1+ r (+1) - DELTA (+1));
b = w * (1-l)/c ;
r = ALPHA * (y/k);
w = (1-ALPHA) * (y/l);
c = y - iv;
iv = (k (+1) - (1-DELTA) * k);
y = k^ALPHA * l^(1-ALPHA);
Hi, Nibha.
You should write a .mod file which includes var varexo model initival shocks .
You can see the Dynare manual to study how to write file or see examples · master · Dynare / dynare · GitLab .
Best！
Thanks for your response. I did write the .mod file and ran the model. The model ran but there is no output I can figure that provide solution for the 7 unknowns or is there any other command/code that should be used ?
var
c l k w r iv y cf
;
parameters
ALPHA
BETA
DELTA
b
;
% parameters caliberation
ALPHA = 0.35;
BETA = 0.99;
DELTA = 0.025;
b = 1;
model;
c (+1)/c= BETA * (1+ r (+1) - DELTA (+1));
1-l = (c/w) * b;
r = ALPHA * (y/k);
w = (1-ALPHA) * (y/l);
y = iv + c;
iv = k (+1) - (1-DELTA) * k;
y = k^ALPHA * l^(1-ALPHA);
end;
% computation
initval;
c = 0.3;
l = 0.2;
k = 4;
w = 1;
r = 1/BETA-1;
iv = 1;
y = 1;
endval
end;
steady;
stoch_simul(periods=2000, drop=200);
forecast;
Because there is no shock in your model. The figure represents how variables response when there is a shock in economic.
Usually, there may be technology shock in your aggregate output as shown in Dynare manual.
At the current stage, I am not providing any shock to the model. The objective is to solve General equilibrium at first.
So in such case how to solve the unknowns?
What do you mean with
? Isn’t that just the steady state?
I guess you are referring to the Policy Functions as the solution, i.e., the decision variables as a function of the shocks and states.
For getting those, just declare a shock, and you will get the formulas. Don’t worry about having to declare the shock. These formulas are general (do not change with specific shocks being active, but of course, depend on what is declared).
What you get after that will look something like this:
MODEL SUMMARY
Number of variables: 3
Number of stochastic shocks: 1
Number of state variables: 2
Number of jumpers: 2
Number of static variables: 0
MATRIX OF COVARIANCE OF EXOGENOUS SHOCKS
Variables eps
eps 0.000000
POLICY AND TRANSITION FUNCTIONS
k z c
Constant 28.348419 1.000000 2.306617
k(-1) 0.962061 0 0.048040
z(-1) 2.157104 0.950000 0.707457
eps 2.270636 1.000000 0.744692
The other option, as suggested by Johannes, is to get the Steady State which is the solution to the static system of equations.
@JC-Granados and @jpfeifer
Sir, I want to solve the DGE model - Dynamic General Equilibrium Model (with only two economic agents - Household and Firms). I have looked at different resources for Dynare code but could not figure out any. If you could please with Dynare codes or how should I approach, that would be really helpful. Thankyou!
Attaching the basic model here–
var
c l k w r iv y
;
parameters
ALPHA
BETA
DELTA
b
;
% parameters caliberation
ALPHA = 0.35;
BETA = 0.99;
DELTA = 0.025;
b = 2;
model;
c (+1)/c= BETA * (1+ r (+1) - DELTA (+1));
1-l/c = b/w;
r = 1/k;
w = 1/l;
iv = y - c;
k (+1) = iv + (1-DELTA) * k;
y = log (k) + log (l);
end;
% computation
initval;
c = 0.3;
l = 0.2;
k = 4;
w = 1;
r = 1/BETA-1;
iv = 1;
y = 1;
end;
endval;
c = 0.5;
l = 0.4;
k = 10;
w = 2;
r = 1/BETA-1;
iv = 2;
y = 2;
end;
perfect_foresight_setup (periods = 10);
perfect_foresight_solver;
Sorry for the direct words that will be following: please take a graduate macro textbook and read up on the essentials. Your questions here suggest that you are missing very elementary knowledge, which does not allow you to formulate coherent questions. This is a waste of time for all participants. This forum is not a substitute for formal training in DSGE modeling.