Dear all,

I am a beginner of dynare and I currently working with the Bernanke & Gertler “Monetary Policy & Asset Price Volatility” paper (1999) and after I conduct my code and I try to run it and it shows, Error using dynare (line 174) DYNARE: preprocessing failed. And doubt checks the location of my file and it is correct.

And I have no idea what mistake that I just made, did I type the equation wrongly? Does anyone know how to solve it?

This is my model.

\Bernanke & Gertler “Monetary Policy & Asset Price Volatility” paper (1999)

var y c ce i g s q mc k r rs rq rk z l pi n rn;

varexo e_rn e_g e_z;

parameters C_Y Ce_Y I_Y G_Y N_K K_N Y_N beta alpha delta rho_z rho_g psi sigma kappa a b thetf thetb tau vthet phi xi rn_t R Rk Rq pi_rl pi_rh;

C_Y = 0.61; // C/Y, BGG

Ce_Y = 0.04; // Ce/Y, p.47

I_Y = 0.18; // I/Y, BGG

G_Y = 0.2; // G/Y, p.47

K_N = 2; // K/N BGG

Y_N = 0.28; // BGG

N_K = 0.5; // N/K p. 47

beta = 0.99; // Time Preference, p.47

alpha = 0.33; // capital share of production, p.47

delta = 0.025; // p.47

rho_z = 1; // BGG, technology obey 4.27

rho_g = 0.95; // BGG

psi = 0.05; // p.47

sigma = 1; // p.47

kappa = 0.086; // p.47

a = 0.98; // Growth rate of exogenous bubble, p.47

b = a*(1-delta); // p.47

theta_f = 0.5; // Inflation Expectation, p.47

theta_b = 0.5; // Inflation Expectation, p.47

tau = 0.95; // The probability of the firm survives in next period, p. 47

vtheta = (1-delta)/((alpha*Y_N/K_N)+1-delta); // p.46

phi = 0.25; // p.47

xi = 1.33; // parameter of utility function (log utility), p.47

rn_t = 1.02; // Target nominal interest

R = 1/beta; // Steady State Level of r

Rk = R+0.02; // Steady State Level of r^k (ASSUMPTION)

Rq = R+0.01; // Steady State Level of r^q (ASSUMPTION)

pi_rl = 1.01; // Inflation Response: Accommodative, p. 30

pi_rh = 2.0; // Inflation Response: Aggressive, p. 30

model;

// Aggregate Demand

y = C_Y*c + Ce_Y*ce + I_Y*i + G_Y*g; // A1 Aggregate Demand

c = -sigma*r + c(+1); // A2 Euler Condition for Household Consumption
ce = s + k(+1); // A3 Assumption: Entrepreneurial Cons is prop. to stock value
q(+1) = phi*(i(+1)-k(+1)); // A4 Investment is prop. to fundamental value of capital

// Returns to Stock and Capital

s(+1) - q(+1) = (s - q) * a * Rq; // A5 The expected evolution of the bubble

rq = (1-vtheta)*(mc+y-k)+vtheta*q-q(-1); // A6 Fundamental Return to Capital

rs = (1-vtheta)*(mc+y-k)+vtheta*s-s(-1); // A7 Return to Stocks

rs(+1) = rq(+1) - (1-b)*(s-q); // A8 Relation between stock return and fundamental return
rs(+1) = r - psi*(n-s-k(+1)); // A9 Link between spread and firm leverage

// Aggregate Supply

y = z + alpha*k + (1-alpha) l; // A10 Cobb Douglas Production Function*pi(-1); // A12 Evolution of inflation (sticky prices) The Gali n Gertler NK phillip curve

y - l + mc - c= (xi-1)l; // A11 Household Labor-Leisure Decision

pi = kappamc + theta_fpi(+1) + theta_b

// Evolution of state variables and shock process

k(+1) = delta*i + (1-delta) k; // A13 Capital*z(-1) + e_z; // A16 Total Factor Productivity AR(1) process (the technology obey BGG 4.27)

n = Rq * ( (K_N) * (rs - rs) + (1-tauRk)/(tau)y + n(-1)) ); // A14 Internal Equity

g = rho_gg(-1) + e_g; // A15 Government Spending AR(1) process

z = rho_z

// Monetary Policy Rule

r = rn - pi_rl * pi(+1); // A17 Policy Rule Accommodative

r = rn - pi(+1); // A18 Fisher Equation

end;

check;

steady;

shocks;

var e_g; stderr 0.1;

var e_z; stderr 0.1;

var e_rn; stderr 1.0;

end;

stoch_simul(irf=24);

I would really appreciate it for your help.

Many Thanks

Kax