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: [].

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,

FinConstraints_Replication.mod (1.5 KB)

2. I would always go for option 3 of

Dear Edoardo,

Here is the corrected code for [ ].

fin_con_eric_sims.mod (1.6 KB)

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.

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