There is still a difference of two roots. You need to recheck everything.
I have mapped everything excatly as the equations are? Is there a different way to map AR(1) processes and exogenous processes? Also, do I need to put expectation separately where it appears? These are the only places where the problem might be arising. I have re-checked all equations twice. Or is there a issue with mapping log-linear approximation of the model.
I rechecked all equations. There does not seem to be any typing error. So, I am not able to figure out what might be going wrong.
- You can use Dynare’s \LaTeX-capabilities to better check that.
- Your implementation looks correct.
- No, they are implied around each equation.
I did check 4 times since I replied last time with the exact log-linearization, also referring to original papers but there is no typing error in equations. I also went through other dynare mod files for “Gali and Monacelli” as well as “Smets and Wouters” but could not figure out the problem simulation might be creating. I do not have Measurement equations like in Smets and Wouters but that will be needed only for estimation. There might be something else? Any suggestions? Will be glad for help.
But does it work in your Python code?
Yes, it does, I could make it work with simulated data. The gensys solution was stable as well. The only difference being the way equations are mapped but the equations are same.
What exactly does that mean?
The equations are exactly the same. We have to define expectational errors to deal with expectations in a different manner in python. It has got nothing to do with model equations. I am sure about the model equations, I have listed above
If I have to map the above set of 13 equations in dynare then will it not be exactly the way I have mapped those?
I found the following link where someone has tried to map Monaceeli (2005)'s model and was facing similar issues but I could not find a reply to that question
I will be really glad if you can help in recognizing what might be going wrong with the model mapping and what I might be missing.
I re-worked on mapping the model (mapping inflation terms with a lag). However, there still seems to be a problem with interest rates. I am attaching the revised model. Will be grateful for help.
Monetary_model_v03.mod (4.0 KB)
Although I mapped the inflation with a lag, I do not think it is correct. Inflation is forward looking in the model following Monacelli (2005) and Galli and Monacelli (2005). However, I am still not able to figure out what I might be missing. I am exactly mapping log-linear approximation of a version of Monacelli (2005). If someone has comments to offer?
Yes, I agree that the timing now looks weird. Unfortunately, I haven’t seed a proper working version of the Monacelli (2005) paper.
Here is a paper which implements a version of Monacelli (2005) in Matlab with its log-linear approximation. But mapping these equations does not work in dynare.
You can look at Page 12 and 13 of the paper. I was trying to attach the paper but it exceeded file size. In this paper authors seem to have succesfully implemented a version of Monacelli(2005) in MATLAB. Will it be possible to help now to see what I might be doing wrong even when I directly try to replicate this model.
So, I revisited the model and made some modifications to the taylor rule and other equations. I am attaching the revised file here. I think now it will be easy to help. I get the following error:
One of the eigenvalues is close to 0/0 (the absolute value of numerator and denominator is smaller than 0.0000!
If you believe that the model has a unique solution you can try to reduce the value of qz_zero_threshold.
Monetary_model_v04.mod (5.6 KB)
Test this method :
\texttt{resid ;}
\texttt{steady;}
\texttt{check(qz_zero_threshold=1e-20) ; }
\texttt{model_diagnostics ;}
In dynare if eigenvalue be less than 0.000001 dynare set it zero. Therefore in calculations of a ratio if you have 0/0 ratio or the denominator be 0 you will have error in Dynare output results.
In the first step test the above method although in these situations in many cases this error may be for other important issues.
It’s hard to tell. Are there any codes available? It seems there is a fundamental singularity. Take the attached file. e is only contained in the Taylor rule, which is strange. It seems that there is an equation missing while the risk sharing condition seems to be implied by the other equations.
Monetary_model_v04.mod (6.0 KB)
Here are their Matlab codes
If these codes can help. I have been trying to figure out which equation might be missing going through their paper but have not been succesful so far
Unfortunately, this did not work