# Problem with steady state (Heathcote Perri 2013)

Dear all,

I am currently working on replicating the model from Heathcote and Perri’s paper “The International Diversification Puzzle is not as bad as you think” (2013) (paper here) in Dynare using the Devereux-Sutherland method.
helpplease.mod (12.1 KB)
I use the standard Normalization (z_bar = 1), and obtain the steady state, however when I try ty simulate the model, the following error message shows up:

dynare helpplease

Configuring Dynare …
[mex] Generalized QZ.
[mex] Sylvester equation solution.
[mex] Kronecker products.
[mex] Sparse kronecker products.
[mex] Local state space iteration (second order).
[mex] Bytecode evaluation.
[mex] k-order perturbation solver.
[mex] k-order solution simulation.
[mex] Quasi Monte-Carlo sequence (Sobol).
[mex] Markov Switching SBVAR.

Using 64-bit preprocessor
Starting Dynare (version 4.5.7).
Starting preprocessing of the model file …
Found 43 equation(s).
Evaluating expressions…done
Computing static model derivatives:

• order 1
Computing dynamic model derivatives:
• order 1
• order 2
Processing outputs …
done
Preprocessing completed.

STEADY-STATE RESULTS:

c1 0.514301
c2 0.514301
mc1 1.94439
mc2 1.94439
n1 0.903007
n2 0.903007
mn1 0.903007
mn2 0.903007
k1 9.39791
k2 9.39791
x1 0.140969
x2 0.140969
f1 1
f2 1
y1 0.655269
y2 0.655269
G1 0.655269
G2 0.655269
NFA 0
a1 0.85
a2 0.15
b1 0.15
b2 0.85
qa1 0.655269
qa2 0.655269
qb1 0.655269
qb2 0.655269
ex1 1
tt 1
P1 9.39791
P2 9.39791
d1 0.0949283
d2 0.0949283
w1 0.708743
w2 0.708743
r1 1.0101
r2 1.0101
lambda11 1
lambda12 0
z1 0
z2 0
cd 0
cg 0.514301

Residuals of the static equations:

Equation number 1 : 0
Equation number 2 : 0
Equation number 3 : 0
Equation number 4 : 0
Equation number 5 : 0
Equation number 6 : 0
Equation number 7 : 0
Equation number 8 : 0
Equation number 9 : 0
Equation number 10 : 0
Equation number 11 : 0
Equation number 12 : 0
Equation number 13 : 0
Equation number 14 : 0
Equation number 15 : 0
Equation number 16 : 0
Equation number 17 : 0
Equation number 18 : 0
Equation number 19 : 0
Equation number 20 : 0
Equation number 21 : 0
Equation number 22 : 0
Equation number 23 : 0
Equation number 24 : 0
Equation number 25 : 0
Equation number 26 : 0
Equation number 27 : 0
Equation number 28 : 0
Equation number 29 : 0
Equation number 30 : 0
Equation number 31 : 0
Equation number 32 : 0
Equation number 33 : 0
Equation number 34 : 0
Equation number 35 : 0
Equation number 36 : 0
Equation number 37 : 0
Equation number 38 : 0
Equation number 39 : 0
Equation number 40 : 0
Equation number 41 : 0
Equation number 42 : 0
Equation number 43 : 0

MODEL_DIAGNOSTICS: The Jacobian of the static model is singular
MODEL_DIAGNOSTICS: there is 1 colinear relationships between the variables and the equations
Colinear variables:
c1
c2
mc1
mc2
n1
n2
mn1
mn2
k1
k2
x1
x2
f1
f2
y1
y2
G1
G2
NFA
a1
a2
b1
b2
qa1
qa2
qb1
qb2
ex1
tt
P1
P2
d1
d2
w1
w2
cd
Colinear equations
12

MODEL_DIAGNOSTICS: The singularity seems to be (partly) caused by the presence of a unit root
MODEL_DIAGNOSTICS: as the absolute value of one eigenvalue is in the range of ±1e-6 to 1.
MODEL_DIAGNOSTICS: If the model is actually supposed to feature unit root behavior, such a warning is expected,
MODEL_DIAGNOSTICS: but you should nevertheless check whether there is an additional singularity problem.
MODEL_DIAGNOSTICS: The presence of a singularity problem typically indicates that there is one
MODEL_DIAGNOSTICS: redundant equation entered in the model block, while another non-redundant equation
MODEL_DIAGNOSTICS: is missing. The problem often derives from Walras Law.
Error using print_info (line 42)
Blanchard Kahn conditions are not satisfied: no stable equilibrium

Error in stoch_simul (line 100)
print_info(info, options_.noprint, options_);

Error in helpplease (line 451)
info = stoch_simul(var_list_);

Error in dynare (line 235)
evalin(‘base’,fname) ;

Could someone help me please, what am I doing wrong? Thank you in advance.

Kind regards,
Ivan Cvetkovic

This is not an error, but simply a message that your model has a unit root. Only if that unit root is not expected, this is a problem.