I am trying to replicate the results of the paper
“Environmental policy and macroeconomic dynamics in a New Keynesian model” (Barbara Annicchiarico & Fabio Di Dio, 2015).
I have implemented the model in Dynare and can run the code without numerical errors, but my simulated dynamics differ from those reported in the paper. In the process of replication, I encountered two issues that I am not fully confident about and would appreciate some guidance.
1. Incomplete steady-state information
The paper reports only a subset of the steady-state values. In particular, the steady-state level of capital K is not explicitly provided.
To close the model, I backed out K from the steady-state investment equation using the reported value of steady-state investment III, and then substituted this value into the steady-state block.
While this allows the model to run, I am not sure whether this is consistent with the authors’ calibration strategy, or whether a different normalization or steady-state condition should be imposed.
2. Treatment of Tobin’s q
The equilibrium conditions include Tobin’s q, but it is not treated as an endogenous variable in the paper, nor is its law of motion explicitly stated.
In my Dynare implementation, if I keep q as a variable without an equation, the model is not well defined. As a temporary workaround, I set q=1 in model and replace it accordingly in the model equations.
However, I am unsure whether this is the intended approach, or whether q should be introduced as an endogenous variable with an additional condition.
Questions
1、Is backing out the steady-state capital stock from investment an acceptable approach in this context?
2、How should Tobin’s q be treated properly in Dynare for this type of model?
I am happy to provide my .modfile or specific code snippets if that would be helpful.
Thank you very much for your time and help.
E_NK.mod (4.3 KB)