# New Keynesian Model with Rotemberg Sticky Prices **URL:** \ **Category:** General DSGE Modeling\ **Created:** [5 May 2025 06:56 UTC](https://forum.dynare.org/t/new-keynesian-model-with-rotemberg-sticky-prices/27534 "2025-05-05T06:56:44Z")\ **Posts on this page:** 5\ **Page:** 1
**Author:** ![Q\_24](https://forum.dynare.org/letter_avatar_proxy/v4/letter/q/76d3ee/32.png) [@Q\_24](https://forum.dynare.org/u/Q_24)\ **Post date:** [5 May 2025 06:56 UTC](https://forum.dynare.org/t/new-keynesian-model-with-rotemberg-sticky-prices/27534/1 "2025-05-05T06:56:44Z")
[NK\_Energy\_Model.mod](https://forum.dynare.org/uploads/short-url/s2nbdoGmpw3Y1sMb6HmPHo9mkX6.mod) (11.1 KB) Hi all, I have uploaded the code for my NK-DSGE model using Rotemberg Sticky Pricing. I am struggling to get the model running, I am unsure whether I made a modelling error. In the model I have a intermediate goods sector and a energy sector both with monopolistic competition. I calculate the marginal cost in both sectors from cost minimization. I think that this is where the issue may lie. From cost minimization, the steady state marginal cost cannot match that from the NKPC. MC = 1 from cost minimization and the inverse markup from the NKPC. Initially I thought I could just multiply the marginal cost by the inverse markup but after doing that inflation adjusts immediately back to steady-state as if there are no price rigidities. At this point, I’m unsure how to proceed and would greatly appreciate any insights or suggestions. Many thanks in advance. ---
**Author:** ![jpfeifer](https://forum.dynare.org/user_avatar/forum.dynare.org/jpfeifer/32/5044_2.png) [@jpfeifer](https://forum.dynare.org/u/jpfeifer)\ **Post date:** [5 May 2025 14:17 UTC](https://forum.dynare.org/t/new-keynesian-model-with-rotemberg-sticky-prices/27534/2 "2025-05-05T14:17:13Z")
The algebra in the attached paper may be useful: [Oh 2019 - The Propagation of Uncertainty Shocks Rotemberg vs. Calvo.pdf](https://forum.dynare.org/uploads/short-url/xplzit0keNoDjGDrDRETTPGIjro.pdf) (741.1 KB) ---
**Author:** ![Q\_24](https://forum.dynare.org/letter_avatar_proxy/v4/letter/q/76d3ee/32.png) [@Q\_24](https://forum.dynare.org/u/Q_24)\ **Post date:** [6 May 2025 12:39 UTC](https://forum.dynare.org/t/new-keynesian-model-with-rotemberg-sticky-prices/27534/3 "2025-05-06T12:39:14Z")
Dear Prof Pfeifer Thank you, the paper has helped my understanding of the problem I am having. I would like to clarify a couple of points. I believe the problem in my model arises from defining both the FOCs and the marginal cost via cost minimization. Am I correct in thinking that only the FOCs are needed, and that the explicit marginal cost definitions should be omitted? If that is the case, I suspect I may be missing an equation to close the model. I plan to remove the marginal cost definitions from both the intermediate goods and energy sectors and instead include the goods market clearing condition. However, this would still leave me with one equation short. Any further guidance on this issue would be greatly appreciated. Regards ---
**Author:** ![jpfeifer](https://forum.dynare.org/user_avatar/forum.dynare.org/jpfeifer/32/5044_2.png) [@jpfeifer](https://forum.dynare.org/u/jpfeifer)\ **Post date:** [6 May 2025 14:12 UTC](https://forum.dynare.org/t/new-keynesian-model-with-rotemberg-sticky-prices/27534/4 "2025-05-06T14:12:50Z")
No, usually if marginal costs appear as variable, you need to have the definition of the marginal costs in there as well. ---
**Author:** ![Q\_24](https://forum.dynare.org/letter_avatar_proxy/v4/letter/q/76d3ee/32.png) [@Q\_24](https://forum.dynare.org/u/Q_24)\ **Post date:** [7 May 2025 16:57 UTC](https://forum.dynare.org/t/new-keynesian-model-with-rotemberg-sticky-prices/27534/5 "2025-05-07T16:57:19Z")
I understand that but I meant if I define it through the lagrangian multiplier as part of the FOC’s. Then I would not need to have the definition from cost minimisation included as well?