How to specify a multi-staged production function?

Dear all,

I am currently trying to reproduce the results from Nikhil Patels 2016 BIS working paper (#539) on “International Trade Finance and the Cost Channel in Open Economies”.
One pressing problem is, how I can specify a multi-staged production function?

In the paper there is an import-export sector in both economies operating under a production function of the following form (simplified):

**Y_k,t = Y_k-1,t
where k denotes the “stage of production”.
The idea is, that these import-export firms do not produce a new physical good but rather relocate goods from the domestic producers (operating under a standard technology), so e.g. they take good j from the domestic producer at the geographic representation “stage 0” and relocate it to “stage 1”, maybe the docks, or already the other country… - I think the exact way is not all too important to get the idea that they create output by taking as input the previous-staged outout.

Now, I would know how to deal with a production function where the output would be created by, say, weighted previous-term outputs (e.g. most simple example Y_t = Y_t-1, then I could but Y_t-1 as Y_t(-1) in Dynare).
But how can I compute a production technology of the type specified above?

Thank you all, great forum btw! :slight_smile:

That is hard to tell. I don’t have experience with that type of models. The timing t-1 in Dynare encodes that a variable is predetermined, i.e. cannot be altered anymore when choices at time t are made. Is that the idea in that model as well? Output produced earlier moves along the production chain?

Prof. Pfeifer,

thanks for your reply.
I have managed to work around that particular equation and written up a code for the model.
However, a new, more pressing problem emerged, so I would be very thankful if you maybe could have a look at the file :wink:
The post can be found here: [Two big open economy model).

Thank you!