Problems with a two-sector small open economy


I am working on a model of a small open two-sector economy in Dynare. I have got two versions of the model, one in levels to calculate the steady state (Model2) and then one in loglinear form to simulate IRFs (Model4). The model in levels works fine but in the loglinear version I have one equation too many and if I omit one which I think is redundant, I get the error “impossible to find steady state”. I have attached the mod files for both models and a pdf file with the equations for both written out in full. Any help you can offer would be greatly appreciated.

Many thanks

Small open two-sector economy.pdf (72.7 KB)
Model4_fixL_nocorr_noprof.mod (5.5 KB)
Model2_fixL_allpam_noprof.mod (3.34 KB)

[quote]“impossible to find steady state”.

For this part, you can add a short code named as the same name as the mod file followed by “_steadystate”, which output the steadystate for your model. the example under directory fs2000 use the same method.

For the two sector part, Michel told me the transition matrix for it is singular. To avoid that, I guess you have to introduce enough curvature in reallocation of resources between sectors. I don’t whether Dynare has some sample model to illustrate that.[/quote]

Thanks for that. Now I see the rank conditions aren’t satisfied but I think I now know how to get it to work.