Problem with the steady state

Steady state
21

Thank you! Here is the adjusted .mod file, there are no longer NaNs in the steady state but the issue now is that matrix is singular to working precision:

MinWageModel.mod (9.5 KB)
Model_equations_adj.pdf (171.5 KB)

One thing I am not sure is that I define inflation as P/P(-1) with P given as the weighted average of the two sector-level prices, but then I can only rescale the latter equation to express it in terms of P_H/P and P_L/P:
image

22

Again, there should be no price level appearing in your model, only relative prices and inflation.

23

Ok, I can only rewrite it like this, but there is still the issue.

MinWageModel.mod (9.4 KB)

24

The parameter generating files are missing.

25

Apologies, here they are:
MinWageModel.m (6.4 KB)
MinWageModel.mod (9.4 KB)
MinWageModelSS_Targets_Final.m (4.7 KB)

26

You need to find out why the price levels are not consistent. You have

PstarL_P=p_aL/p_bL;

with PstarL_P = 60.8947, but p_aL = 6.8003 and p_bL = 4.9729 lead to p_aL/p_bL = 1.3675

27

Thank you very much, will work on that now!

28

Hi,

I’ve been trying to figure out the issue with prices, but I am not sure what the issue could be. The prices are not consistent at all.
MinWageModel.mod (9.4 KB)
MinWageModel.m (6.9 KB)
MinWageModelSS_Targets_Final.m (5.5 KB)

If I rewrite the code as in the below, the prices become consistent, but, there is still the issue with the steady state. I really can’t figure out what the issue is as the model seems fine conceptually.
MinWageModel.m (6.8 KB)
MinWageModel.mod (9.4 KB)

Any ideas?

Thank you!

29

At this stage, I can only recommend sitting down with pencil and paper and solving the steady state analytically.

30

Thank you! I did that but it says that steady state file did not compute the steady state and I don’t see why is this (there is still the issue with prices for some reason). Is there any other approach I could try?

minwage.m (5.0 KB)
MinWageModelNEW.mod (9.5 KB)

31

No, there isn’t. You know that there is an inconsistency between the steady-state equations you used and the entered dynamic model equations. Because you don’t know in which of the two parts the problem is, the only way is to work on both until they coincide. At this stage, I doubt that any brute force approach will be successful.

32

I see, thank you very much for all the help!