Hello.

I’m trying to find a steady-state of a dsge model with two sectors.

I tried to capture the limited labor mobility in the model, so I have CES function for aggregate labor such as

L = [\xi_d^{-1/\lambda} L_d^{(1+\lambda)/\lambda} + (1-\xi_d)^{-1/\lambda} L_o^{(1+\lambda)/\lambda}]^{\lambda/(1+\lambda)}

where \xi_d is steady-state ratio of labor of sector d, L_d/L.

What I’m trying to do is, first of all, derive steady-state without a shock.

And then, derive new steady-state with permanent tax shock.

And finally, I want to derive the transition between the two steady-states with perfect foresight algorithm in dynare.

In my dynare code, I set the parameter value of \xi_d = 1/2 so that old steady-state of L_d and L_o as 1/2, respectively.

But with the permanent tax shock, the new steady-state of sectoral labor will change, and so will the value of \xi_d.

I did find the old steady-state, but failed to find the new steady-state with the shock.

In this case, how could I derive the new steady-state? I’m not sure how I can I set different parameter value for different steady-state.

Thank you for your help!!

nonlinear_model4.mod (8.5 KB)