Hello,

I have a small nonlinear PF model that I am trying to solve in dynare. I cannot get rid of a few of my residual errors indicating some kind of an issue with the steady state solution. What is the most likely issue that is causing this? Obviously the initial steady state guess computed analytically does not match the steady state of the static model, which might indicate a problem with the analytical solution.

Also, can I simply write the linearized version of this model and solve it with the default perfect foresight solver or are there any additional options that need to be specified.I read in another thread that this can be done, but I could not find any information on how that needs to be specified. Assuming that one can just plug the linear version of this model without specifying any additional options, the model has a solution and all of my residuals are zero. My other question is what do the residuals in the linear version of a model whether PF or stochastic represent?

Here is my mod file. Another puzzling thing is that with the default steady command half of my equations have residual errors whereas if I try chris sim’s solver steady(solve_algo=3); I get only one residual with my equations. I don’t really understand this.

PF_seg.mod (4.0 KB)

I would appreciate any feedback if possible. Thanks