Hello all,

I have tried to simulate, using Dynare, a constant gain learning model outlined in Branch, Evans, McGough (2014) here: https://economics.uoregon.edu/wp-content/uploads/sites/4/2015/07/Branch.pdf

The actual economy behaves according to y_t = \alpha + \beta E_ty_{t+1} + \delta y_{t-1} + \varepsilon_t

In this model, agents estimate y_t = a+ cy_{t-1} + \varepsilon_t

The dynamic system of the economy, with estimated coefficients a_t,c_t is described by the Actual Law of Motion:

y_t = \alpha +\beta c_{t-1}(1+a_{t-1})+(\beta a_{t-1}^2 + \delta)y_{t-1} + \varepsilon_t

The constant gain learning equations are captured by the coefficient vector \theta_t = \begin{bmatrix} a_t \\ c_t \end{bmatrix} = \theta_{t-1} + \gamma R_t^{-1}x_t(y_t-\theta_{t-1}'x_t) \\ R_t = R_{t-1} + \gamma (x_tx_t'-R_{t-1})

I get the following message when I implement the .mod file:

Residuals of the static equations:

Equation number 1 : NaN

Equation number 2 : NaN

Equation number 3 : NaN

Equation number 4 : NaN

Equation number 5 : NaN

Equation number 6 : NaN

Equation number 7 : NaN

Equation number 8 : NaN

Equation number 9 : NaN

Error using print_info (line 90)

The steady state contains NaN or Inf

Error in steady (line 104)

print_info(info,options_.noprint, options_);

Error in learning2 (line 140)

steady;

Error in dynare (line 235)

evalin(‘base’,fname) ;

Thank you in advance

Branch.pdf (764.3 KB)

learning2.mod (569 Bytes)learning2.log (1.8 KB)