Risk aversion and generalized Schur (QZ) decomposition

Steady state
1

Dear Dynare team,

I am using Dynare (4.5.7 and also 4.5.3) to compute a model with super high risk aversion. I noticed that if I set the relative risk aversion to be more than 15, then Dynare complains that “generalized Schur (QZ) decomposition failed”.

When I run model_diagnostics(M_,options_,oo_), I got message about The presence of a singularity problem, which comes from the collinearity problem.

These errors only occur if I set risk aversion to be super high, e.g. higher than 15.

I am wondering does it mean that Dynare cannot handle large risk aversion due to the QZ decomposition?

Thank you very much in advance. Looking forward to your helps.

Best.

2

This is most probably not a problem with the QZ decomposition per se, but rather an numerical issue introduced by the high exponent. Say consumption in steady state is 0.3. Marginal utility will be 0.3^(1-15)=4.7830e-08
Note that you are already moving dangerously close to machine precision.