Professor! How to resolve this problem/error ?

MSP_newest.mod (19.3 KB)

How sure are you about the pound variables defined at the top section of the model block? If I run your file, Dynare complains because it detects non zero second order derivatives while you declare the model as linear. The error message gives a list of the equations with non linear terms:

```
ERROR: If the model is declared linear the second derivatives must be equal to zero.
The following equations had non-zero second derivatives:
* Eq # 3
* Eq # 50
* Eq # 51
* Eq # 53
* Eq # 55
* Eq # 57
* Eq # 58
* Eq # 68
* Eq # 71
* Eq # 73
* Eq # 76
* Eq # 87
* Eq # 89
* Eq # 90
* Eq # 91
```

If I change the definition of `MC_m_ss`

as:

```
MC_m_ss = (1/A_m_ss)*((w_r_ss/(1-alpha3))^(1-alpha3))*((r_m_ss/alpha3)^alpha3) ;
```

replacing `w_r`

by `w_r_ss`

, and run again Dynare, I obtain:

```
ERROR: If the model is declared linear the second derivatives must be equal to zero.
The following equations had non-zero second derivatives:
* Eq # 51
```

In this equation (banking sector) you have divisions by `pi`

which is an endogenous variable, and the inverse is not linear…

Best,

Stéphane.

Thank you so much for your reply, let me cross check…