Small DSGE model with financial constraints - Dynare code

Dear all,

as I am totally new to Dynare, I was wondering whether you could help me replicate the model setup and estimation illustrated in this handout by Prof. Eric Sims: [https://www3.nd.edu/~esims1/financial_constraint_2017.pdf].

I am trying to build a very simple model for my MSc dissertation, whose main focus shall be on the implications of financial constraints on economic activity.

As of now, my main problem is that I am unable to have the steady state computed (although I solved for it analytically following the steps in the document). Please notice that I have been entering some variables in the exp() form, as I would then like to interpret the respctive IRFs as %deviations from SS.

What I think I am writing incorrectly is the stochastic process for the level of financial constraint, for which I am following the same approach as for the process for technology.

I am therefore attaching my .mod file. Any word of feedback/help would be highly appreciated.

Thank you very much,
Edoardo

FinConstraints_Replication.mod (1.5 KB)


2. I would always go for option 3 of