# Non-negativity constraints

Hello all,
A couple of questions regarding whether Dynare imposes non-negativity constraints. I have a model with two sectors, and two laws of motion for investment. The investment resource constraint writes: I(total) = I(sector 1) + I(sector 2). Now, since I allow for full mobility of capital, then it could be possible that the optimal choice is to cut down investment in one sector, effectively transfer capital to the other. Does Dynare allow for this, or does it somehow impose non-negativity constraints?

In trying to find-out the above, a second question came to my mind. I simulated the model, which gives me values for each variable at each period. Now since I log-linearise the model, each of these variables is expressed in log-deviations from the steady-state. In order to check whether indeed some values are negative, I added to the value given by Dynare the steady-state value (I have that, I solve the steady-state by hand). For example to get the consumption in NON-deviation from steady-state, I do:

for i=1:length(oo_.endo_simul)
c1_NonDev(i) = oo_.endo_simul(8,i) + c1_ss ;
end

… where 8 is the position of consumption in the M_.endo_names and c1_ss is consumption at steady-state.

However, I often get negative values even for consumption!! Am I doing something wrong? Or is the way I am thinking about this wrong?
Thanks!

Kyri

First, Dynare does not impose non-negativity constraints. How should it do that and know for which variables such a constraint applies?
Second, in a linearly approximated model, there are no bounds on the endogeneous variables as every policy rule is linear. Hence the curvature implied by the Inada conditions is always lost. Using higher order approximation may make the problem better but will not get rid of it (unless you go to order infinity)

Thanks!