Small DSGE model with financial constraints - Dynare code

[gam.e]

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)

[jpfeifer]

Problem with finding steady state

I would recommend only to do the exp()-substitution once the model works.

2. I would always go for option 3 of

Question about understanding irfs in dynare

To be more precise: it depends on how the variables in your model are measured. As @stepan-a says, Dynare conducts a linearization. If you for example have a nonlinear model and your model variable is simply the level of output, the IRF will measure the difference between the variable and its steady state (or its mean at higher order). This is the case with https://github.com/DynareTeam/dynare/blob/master/examples/example1.mod In contrast, if your model variable already measures percentage…

[tanyajain]

Dear Edoardo,

Here is the corrected code for [https://www3.nd.edu/~esims1/financial_constraint_2017.pdf ].

Best,
Tanya
fin_con_eric_sims.mod (1.6 KB)

[gam.e]

Thanks very much Tanya! I think I managed to sort it out correctly in the end, but I will have a close look at your code, compare it with mine and tell you about potential differences.
Best,
Edoardo

[Jacob02]

Hey Tanyajain
When I try to run your code it does not seem to work. Do you know why that might be the case

Best regards
Jacob