Jermann and Quadrini 2012 RBC with adjustment cost

General DSGE Modeling Replication Attempts
1

I have been trying to replicate all results in Jermann and Quadrini (2012) using Prof. Pfeifer’s code. It’s extremely helpful and I am able to get results in baseline RBC model. I have a problem when I try to add investment adjustment cost to test its sensitivity as in the paper. Technically, all I need to do is to introduce additional variable, Tobin’s q, three new parameters governing adjustment cost and modify the first order conditions. I think I might have made mistake when modifying the m file that calculates steady state values which is also from Prof. Pfeifer’s website.
The warning message is
"Warning: Some of the parameters have no value (alppha, const, pho1) when using steady. If these parameters are not initialized in a steadystate file or a
steady_state_model-block, Dynare may not be able to solve the model… "[Jermann_Quadrini_2012_RBC_adj_cost_steadystate.m (3.5 KB)
Jermann_Quadrini_2012_RBC_adj_cost.mod (20.0 KB)
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I am new to use Dynare and never build a steadystate m.file before. Any comment or suggestion would be appreciated.

2

What is the error message you are getting? One problem is that you are using a parameter called beta, but in the mod-file only betta is defined.
That being said, it is strange that your adjustment costs affect the steady state at all. Usually, they are neutral in steady state and only affect deviations from it.

3

Thanks for quick reply! Yes, that’s the problem! And I also fixed other typos in the code. It’s working now! Thanks!