Hi, I am a phd student and trying to simulate a Lucas (1978) endowment economy using the Dynare.
My issue is I don’t know how to make Dynare handle the random walk with a drift process for log consumption properly.
I am considering the two solutions as below, but nothing works.
By the way, I also looked into Professor Pfeifer’s replication of Jermann (1998). However, Jermann (1998) is based on a production economy and there is no issue regarding random walk process as I have in endowment economy.
Could you give me any advice?
: Use steady(nocheck) and impose a steady-state value for consumption.
The problem is resulting values are far off from the ones from the closed-form.
For example, the equity premium is 674.85%, which should be around 3.6%.
: Use AR(1), put rho=0.999, set qz_zero_threshold = 1e-999
The problem is it generates an error message.