Dear Johannes Pfeifer & All,

I am trying to replicate the results of Melina & Villa, “Fiscal Policy & Lending Relationships”. My model has 38 equations. The paper had listed all equilibrium conditions, the steady state equations and almost all parameter values (attached). So in a way the task at hand was only to write the equations and replicate results.

The only values assumed by my professor were:

y = 1.01 - output

rn = 1 - nominal interest rate

q = 1 - tobin’s q

To my best knowledge, the model has no error’s. Iv’e checked that many times. No matter what I do, I always get this error:

Error using print_info (line 74)

Impossible to find the steady state. Either the model doesn’t have a steady state,

there are an infinity of steady states, or the guess values are too far from the

solution

Error in steady (line 92)

print_info(info,options_.noprint, options_);

Error in prac2 (line 464)

steady;

Error in dynare (line 180)

evalin(‘base’,fname)

I know what the error means. Iv’e been reading dynare forums all day. I tried to compute all steady state values by hand and substituted them in the initval block. Upon running the code, I again got the same message.

I would be extremely thankful if someone could give me a way out? I have attached all files for your reference.

model2.mod (10.1 KB)

model1.mod (10.1 KB)

parameters.pdf (79.4 KB)

equilibrium_conditions.pdf (172 KB)