I can't get steady state in 5 period OLG model with pensions

Steady state
1

Hi!

I am trying to get the IRF for a 5 period 0LG model in which agents work for the first 3 periods, receiving a wage and then retire for 2 when they get their pensions. I am having trouble finding the steady state in dynare as it tells me it cant find it. Since I’ve programmed the model in matlab I already know the s.s. values which are my initial guesses. More specifically, for a replacement rate of 0.3 for the pensions (pensions = 0.3*wage), which is what I want to model, it can’t find a steady state. In case I set the replacement rate to 0, the code gets the correct steady state for some reason I can’t understand. I have uploaded the mod file in case anyone has any suggestions.

Thanks a lot!OLG1_5per_pens.mod (2.8 KB)

Filippos

2

If you think that your steady state computation is correct, then your model equations must be wrong. Have you checked the residuals given your steady state values?

3

Dear Dr Pfeifer,

Yes I did that and got high errors for the first 3 (out of the 4) Euler equations. However I do not understand the reason.

Thank you for your fast reply!

Filippos

4

Using

steady(maxit=1000);

I got

STEADY-STATE RESULTS:

k2   		 0.00623128
k3   		 0.0125614
k4   		 0.00734087
k5   		 0.0197249
c1   		 0.0167009
c2   		 0.0312031
c3   		 0.0575869
c4   		 0.0736106
c5   		 0.134739
C    		 0.062768
K    		 0.00917182
w    		 0.229312
r    		 2.42326
pens 		 0.0687932
tao  		 0.666661
5

yes, sorry my bad!

Thank you a lot fo the fast reply!