SGU (2003) Model 1: Resulting Correlation not as expected


Dear all

I’m trying to replicate the first model (endogenous discount factor) from the paper “Closing small open economy models”. Everything works and looks fine so far, but the correlation between investment and output is -0.1575 instead of 0.66 (in the paper) and the standard deviation of investment is also way too high. Does anybody have an idea what might be the reason for this?

Thank you and best regards!
SGU1.mod (6.5 KB)


Have a look at
which returns the correct results.


Thank you professor.

The problem was, that I set beta = 0.96 and not beta = 1/(1+r), which equals 0.9615 in this case. The numbers look fine now.