Hi all,

I am trying to replicate Cao and Nie (2017) with dynare.

I have pinned down the steady state. But when I add the positive TFP shock, A, into the model, the perfect sight solver cannot solve for it. The code (attached: “cn17_ver3.mod”) describing the shock is: "

initval;

A = 1;

end;

steady;

shocks;

var A;

periods 1 2:20;

values 1.0 1.03;

end;"

The error message says that, “SOLVE: maxit has been reached

Simulation of the perfect foresight model failed!Switching to a homotopy method…

Homotopy not implemented for purely forward models!

Failed to solve the model!

Return with empty oo_.endo_simul.”.

One thing I want to mention about Cao and Nie (2017) is that the production is using the contemporaneous land (h_t) other than landholding from last period (h_{t-1}), which is the model they simplified from Iacoviello (2005). To rule out the default setting of timing convention about state variable in dynare, I converted the land in production from h_t to h_{t-1}, and consequentially, the change of optimality conditions and steady states. Yet I cannot find a steady state. Attached “cn17_ver6.mod” is the code.

Would you please shed some light with me if you see where I did wrong?

Thank you in advance for you time and help.

cn17_ver3.mod (2.2 KB)

cn17_ver6.mod (3.0 KB)