I have written a NK model with 2 countries, fiscal authority, and ricardian and non-ricardian households. I’ve typed up the model in Dynare and am getting the steady state error (there are infinite amount or there aren’t any etc). But I have already calculate the steady state myself by solving the stationary version of the model using fsolve in matlab, and it’s robust to initial guess (within reason, if I give an initial guess of 100 it gives me complex values, but if I iterate it doesn’t fluctuate around previous SS valuees). So steady state clearly exists. And this SS value is what I give dynare as initial value, so the initial values can’t be “too far”. I have alo tried changing the parameter values, but the same equations give me the same non-zero residuals (NaN or -inf).
I am now checking the equations for mistakes/typos. But since there are 74 equations, that will take a while. So meanwhile I wanted to ask whether there are any other reasons for this problem? And is it possible to just give dynare the steady state values so it doesn’t have to calculate them? (in case I can’t find the problem)
The code is attached in case anyone wants to have a look, although it’s quite long. I have already made all the stock variables lag, so that K(-1) is the working capital and K is the stocking up, and similarly b(-1) is the bond that pays interest this period.
I think that the problem might be due to the prices. There are 2 different price levels in each country, the production price index and the CPI. I have normalised all prices by production price index of country 1.
Anyway, any suggestions will be very much appreciated. If you are looking at the code, the equations with %>>>PROBLEM!!! in front of them are the ones with non-zero residuals.
v2.mod (12.8 KB)