Question about the lagged expectation operators


I am trying to simulate a simple general equilibrium model introduced by Wen (2002). My problem is the capital investment decisions must be made in advance for at least one period. So, the capital investment will not respond to demand shocks instantaneously. Some of the first order conditions have the lagged expectation operator and I tried to incorporate it to the code (first two equations). However, the Blanchard condition is not met. Without the operators there is a steady state solution and I also get the impulse responses, but that’s not what I want to solve.

Any help is highly appreciated. I attached my .mod file.

wen.mod (1.18 KB)

Try using an auxiliary variable, see [Expected value of a power)


Thank you very much for your prompt reply. I tried to add auxiliary variables, but it doesn’t seem to work. Probably I’m doing something wrong but I can’t find the problem.

Basically I want to have two equations:

E_(t-1)[f(theta_t, c_t, theta_(t+1), c_(t+1), k_(t+1), n_(t+1))]=0;


E_(t-1)[g(n_t, theta_t, c_t, k_t, n_t)]=0;

and to handle this I defined z1=f(t+1) and used z1(-1)=0. Similarly for the second equation I defined z2=g(t+1) and used z2(-1)=0. But the rank condition is not verified.

Thank you for your help!
wen.mod (1.21 KB)