Lognormal distribution/ Endogenous probability of default


I am trying to solve a simplified version of Forlati and Lambertini (2010) (borrowers/savers model with endogenous probability of default) with fixed housing supply.

In the SS file I call an external function in which I try to get the SS values of the variables related with the lognormal distribution, which I derive as explained in Appendix 5 of Kumhof et al.(2010), attached.

However, some of these values make no sense (e.g. the expected share of housing value, gross of monitoring costs, that goes to lenders is equal to 100%) and as a consequence I do not manage to solve the SS.

Could you please help me with this?

FB2011.mod (3.8 KB)
FB2011_steadystate.m (2.3 KB)
Kumhof et al.(2010).pdf (1.2 MB)
lognorm.m (692 Bytes)

Have you tried different starting values? Maybe there is more than one solution.

Thanks a lot. I tried with more consistent initial values and it worked.

Best Wishes