I am a newbie in the world of Matlab and Dynare. I am trying to replicate the model of Afonso and Gomes Wages_AA_PG_250913.pdf (410.1 KB). The model is described starting from page 15. My mod file is the following interaction.mod (8.2 KB). Any type of help regarding the model, the code, the steady state would be deeply appreciated.
Thanks ! Then since the steady state does not exist, is Dynare capable of supporting a balanced growth path ? If I replace this by: log(a) = rho*log(a(-1)) + e_a; then add rho to the parameters would this permit me to have a steady state ?
It’s actually more complicated. There are conditions under which you can handle a unit root with drift, despite not existing. See
Having a unit root itself without drift is usually not a problem. In this case, there are infinitely many steady states. The issue is there is no unique steady state so that you cannot use numerical techniques to search for it. Therefore, you have to provide the exact values of the one steady state you want to use to Dynare.