Good afternoon to all Dynare users,

I’m using the Jermann and Quadrini (2012) model to estimate the welfare costs of financial shocks. There are two shocks (financial and productivity) in this model, and also two financial frictions (a tax benefit of debt measured by the parameter TAU and na equity cost payout function measured with parameter KAPPA). When simulating the model, I found out that changing the calibration of the parameter TAU also changes the steady state of the economy, hence affecting the results for the expected utilities of the different types of economies (with and without the shocks, with just one shock, etc). The original mod files for my simulations solve the model in the stochastic context (using stoch_simul), but In order to isolate the welfare effects of changing the value of TAU alone in the steady state, I’m trying to solve the model in the deterministic context, to analyse the transition from one steady state (when TAU=0) to the other (when TAU=0.35). However, when I run the file the following error occurs:

??? Undefined function or variable ‘PP’.

Error in ==> simul at 62

II_lag = PP, zeros(m_states,n_endog),zeros(m_states,k_exog)

Error in ==> model17b at 196

simul();

Error in ==> dynare at 120

evalin(‘base’,fname) ;

I attach the mod file for you to check it. I really appreciate if someone can help me to figure out ehat is the problem. I’m new at Dynare so probably is a basic mistake but I need someone to point it out for me. Thank you so much in advance!

Regards,

```
Erica
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model17b.mod (1.95 KB)