Hi! test.mod (744 Bytes) While playing around with Dynare, I have stumbled across an issue that I cannot seem to resolve: My model consists of a perfectly competitive firm producing with a cobb-douglas production function and two households supplying labour and capital. I have the following equati…

Your model has a unit root. That explains the message. [image] From one type to two types of agents Replication Attempts Are you sure that your model setup has a solution? The unit root seems like the type of problem that occurs in open economy setup models. Essentially, a…

Thanks for the prompt answer! I am aware that my model has a unit root, but I have no idea what to do about it. It seems to me that the asset distribution is indeterminate because the two euler-equations are identical in the steady state. Is there anything wrong with forcing the two households to …

Typically, this is a fundamental problem in the setup. Why do you have two agents if they are indistinguishable?

I’d like to model the effect of migration. I thought about doing it in the following way, even though I have to admit that I am unsure if this makes any sense: There is a non-migrant and a migrant household. Both of them are identical in their behaviour. The number of migrants is an exogenous variab…

No, it would only violate the TVC if that debt accumulation would never stop.

Again thanks for answering! I have also tried modelling the transition of one steady state to the other using the perfect foresight solver: Starting at the steady state of the model without a migrant household and then simulating the path to the steady state of the model with a certain number of m…

I am not sure there is actually a TVC embedded in your setup. The only thing restricted in practice seems to be aggregate capital, not its split (thus the unit root). This allows one household to arbitrarily borrow from the other one.

Is there a way to prevent the households from accumulating debt without end? Can one introduce a TVC manually?

I think you need to revisit your setup and think about e.g. a risk-premium the increases if the household borrows too much.

I understand how that would help, but I do not understand why it is necessary. Why doesn’t dynare apply a TVC? Why don’t the jump variables jump on the path that converges to the new steady state?

Singularity and NaN's in two-agents model

Steady state

jpfeifer 3 November 2023 09:07 2

Your model has a unit root. That explains the message.

may be related.