Search and matching, capital adjustment cost and timing issue

Stochastic simulations
1

Hi Dynareist!,

I build a search and matching framework with borrowing constraint and heterogenous households. I added capital adjustment cost (on Eq.9 and 11). If I assume the CAC=0, the MOD file runs fine, but if I increase the cost, indeterminacy issue shown up. This might be caused by incorrect timing associated with capital?

The predetermined variables are n, n1, n2, k. There is a k_{t+2} involved in the model block due to the adjustment cost. I tried to not making k to be predetermined, and using k_{t} and k_{t-1} instead, however the error persists.

Please any help regarding this is appreciated!
SLWv4.mod (7.4 KB)

2

That is hard to tell. Does the strength of adjustment costs matter?