RBC with labour market frictions

Dear Prof. Johannes,

I am trying to simulate a RBC model with search and matching frictions à la Fonseca and Munoz (2003). For the past 4 weeks, I have recalculated the steady state with pen and pencil yet I still struggle to solve the model. I think I am quite close to solving the problem as there is only 1 equation in each file whose residual is -0.00008.
In dgematching file, I have fixed the steady state of output (y_star=1) while in match1, I have endogenously found the steady state of output (y_star). In the former, the technology function residual is -0 while in the latter the euler equation residual is -0.

I look forward to receiving your help

Best Regards

dgematching.mod (2.3 KB)
match1.mod (2.4 KB)

Hi, I don’t see why you should be able to fix both output and labor in steady state if you do not adjust parameters accordingly to make these values the steady state.

Hi Prof!

You are right.
I have fixed a scale parameter in technology such that y=1 in steady state. this works perfectly. I am currently having only the job creation equation whose residual is not equal to exactly 0 (0.0008). What would you suggest in this case?

You need to check your computations. There must be something wrong.


I will discuss further when we meet in Ispra for the training.