No steady state when changing Taylor rule

Steady state
1

Hello,
I am estimating a SWGK model as proposed by Villa (2016). With its original Taylor rule according to S&W (2007) it is running without any problems, however when I change the Taylor rule according to Garin et al. (2016) the estimation says “Warning: Matrix is singular to working precision.” and “STEADY: No steady state for your model could be found.”.
Could anyone advise, where the problem may be?

SWGK TR: rn = rho_r*rn(-1)+(1-rho_r)*(rho_PI*pi+rho_Y*(y-yf))+rho_DY*(y-yf-y(-1)+yf(-1))+eps_r;

Garin TR: rn = rho_r*rn(-1)+(1-rho_r)*(rho_PI*pi+rho_Y*(y-y(-1)))+eps_r;

M3_pre2009.mod (9.6 KB)

2

In Dynare 6.0 a steady state is found. Is your problem during estimation?

3

Thank you for prompt reply. I am using Dynare version 5.4-ish and the problem occurs after tuning the jscale before RWMH simulation.

4

That cannot be caused by the Taylor rule itself. Try adding

steady_state_model;
dy     = trend;
dc     = trend;
dfi    = trend;
dw     = trend;
piobs  = picbar;
robs   = (1/beta-1)*100;
hobsgm = constelab;
end;
5

Thank you, the steady state is now working properly.
I am, however, obtaining some rather strange things in mode check:

Snímek obrazovky (88)
Snímek obrazovky (88)1920×901 73.3 KB

6

What exactly do you consider strange?

7

I mean, the red dots do not cause problem to the estimation and its further interpretation?

8

No, often they just signify the determinacy region of the model. You will get into trouble if your model is just right at the boundary.

9

I see. Thank you soooo much for your help. :slight_smile: