# Small open economy-steady state **URL:** \ **Category:** Dynare help (legacy posts)\ **Created:** [16 June 2014 15:24 UTC](https://forum.dynare.org/t/small-open-economy-steady-state/3975 "2014-06-16T15:24:56Z")\ **Posts on this page:** 6\ **Page:** 1
**Author:** ![carlosvasco](https://forum.dynare.org/letter_avatar_proxy/v4/letter/c/90db22/32.png) [@carlosvasco](https://forum.dynare.org/u/carlosvasco)\ **Post date:** [16 June 2014 15:24 UTC](https://forum.dynare.org/t/small-open-economy-steady-state/3975/1 "2014-06-16T15:24:56Z")
Hello, I’m trying to run this “small open economy” model on Dynare. But it says that there is not steady state: “Impossible to find the steady state. Either the model doesn’t have a steady state, there are an infinity of steady states, or the guess values are too far from the solution” Can someone tell me what I’m doing wrong? 😊 I upload the .mod file as .txt [modelo16.txt](https://forum.dynare.org/uploads/default/original/2X/4/47bc6d1c372da59aec7bb5cf09f81536d2c5df75.txt) (1.25 KB) ---
**Author:** ![jpfeifer](https://forum.dynare.org/user_avatar/forum.dynare.org/jpfeifer/32/5044_2.png) [@jpfeifer](https://forum.dynare.org/u/jpfeifer)\ **Post date:** [17 June 2014 19:01 UTC](https://forum.dynare.org/t/small-open-economy-steady-state/3975/2 "2014-06-17T19:01:32Z")
Try to compute the steady stata analytically using pencil and paper. For your model, this should be straightforward. On my machine, Dynare finds the following steady state: [quote]STEADY-STATE RESULTS: y -4.08625 c 1.95484 k -6.1014 l 0.0958977 w 0.697914 r 0.235592 z 1 b -0.353146 Te 0.579002[/quote] But negative capital makes no sense. Check your parameters. Particularly the beta seems really low. Finally, not that you are violating Dynare’s timing convention. You will need: `predetermined_variables k b; ` ---
**Author:** ![carlosvasco](https://forum.dynare.org/letter_avatar_proxy/v4/letter/c/90db22/32.png) [@carlosvasco](https://forum.dynare.org/u/carlosvasco)\ **Post date:** [28 June 2014 17:20 UTC](https://forum.dynare.org/t/small-open-economy-steady-state/3975/3 "2014-06-28T17:20:22Z")
We try another model. But still we can’t find a steady state. We are trying to replicate a paper: “Optimal oil taxation in small open economy”. We think we have trouble with the initial values. > [@](#): > > * * * > > var c l k b w r tc e p z te y tb; > > varexo x; > > parameters mu r1 beta teta gama phi alpha pe prho rho sigma delta; > > mu = 1/3; > r1 = 0.04; > beta = 1/(1+r1); > teta = 1/3; > gama = 1/3; > phi = 0.2; > alpha = 2; > pe = -0.176; > prho = 0.94; > rho = 0.96; > sigma = 1; > delta = 0.028; > > model; > y = z\*(k^(teta))_(l^gama)_(e^(1-teta-gama)); % eq 1 > c+k(+1) - (1-delta)_k + 0.15_y + tb = y; % eq 3 > tb = p_e +b(+1) - (1+r1)b; % eq 5 > (c/(1-l)) = ((1-mu)/mu)(w/(1+tc)); % eq 6 > ((c/(1-l))^(-mu))_((1+phi_y)^(-alpha))/(1-tc) = beta_((((c(+1)/(1-l(+1)))^(-mu)))_((1+phi_y(+1))^(-alpha))_(1-delta+r(+1))/(1+tc(+1))); % eq 7 > r(+1) - delta = r1; % eq 8 > (1+tc)c + k(+1)-(1-delta)k + b(+1) = wl + rk + (1+r1)b; % eq 9 > w = gama(y/l) ; % eq 10 > r = teta_(y/k) ; % eq 11 > (1+te)_p = (1-teta-gama)_(y/e); % eq 12 > 0.15_y = tc_c + te_p_e; % eq 13 > > % Shock de productividad > log(z(+1)) = rho\*log(z)+ x; % eq 2 > > % Shock de precios > log(p(+1)) = pe + prho\*log(p)+ x; % eq 2 > end; > > initval; > > c = 3; > l = 2; > k = 2; > y = 5; > b = 3; > w = gama\*(y/l); > r = teta\*(y/k); > tc = -(((1-mu)/mu)_(1-l)w/c)+1 ; > e = 1; > p = 1; > z = 1.2; > te = (0.15y-tc_c)/(p_e); > tb = p_e+b-(1+r1)\*b; > > end; > > steady; > > check; > shocks; > var x = sigma^2; > end; > > stoch\_simul(periods=1000); ---
**Author:** ![jpfeifer](https://forum.dynare.org/user_avatar/forum.dynare.org/jpfeifer/32/5044_2.png) [@jpfeifer](https://forum.dynare.org/u/jpfeifer)\ **Post date:** [30 June 2014 14:04 UTC](https://forum.dynare.org/t/small-open-economy-steady-state/3975/4 "2014-06-30T14:04:05Z")
Apart from completely wrong timing for x and the predetermined stocks (which do not affect the steady state, but need to be fixed later), your initial values are too poor. In particular, l needs to be between 0 and 1, but you start it at 2. Please try to compute the steady state analytically. ---
**Author:** ![carlosvasco](https://forum.dynare.org/letter_avatar_proxy/v4/letter/c/90db22/32.png) [@carlosvasco](https://forum.dynare.org/u/carlosvasco)\ **Post date:** [1 July 2014 18:07 UTC](https://forum.dynare.org/t/small-open-economy-steady-state/3975/5 "2014-07-01T18:07:13Z")
Ok, we fixed the initial values with the authors data. Now the problem is this: [quote]STEADY-STATE RESULTS: c -0.308473 l 1.79118 k 3.4918 b -12.6259 w 0.194944 r 0.1 tc -1.27679e-09 e 0.18379 p 1.04494 z 1 te 0.818182 y 1.04754 tb 1.1011 Error using print\_info (line 54) One of the eigenvalues is close to 0/0 (the absolute value of numerator and denominator is smaller than 1e-06! If you believe that the model has a unique solution you can try to reduce the value of qz\_zero\_threshold.[/quote] How can we fix this and get the shocks? What do you mean with wrong timing x? [estadoestacionario.mod](https://forum.dynare.org/uploads/default/original/2X/1/13c986efd2046071097cafb4ac49c9d24f5e7696.mod) (1.34 KB) ---
**Author:** ![jpfeifer](https://forum.dynare.org/user_avatar/forum.dynare.org/jpfeifer/32/5044_2.png) [@jpfeifer](https://forum.dynare.org/u/jpfeifer)\ **Post date:** [2 July 2014 14:11 UTC](https://forum.dynare.org/t/small-open-economy-steady-state/3975/6 "2014-07-02T14:11:19Z")
model\_diagnostics says: [code]MODEL\_DIAGNOSTICS: The Jacobian of the static model is singular MODEL\_DIAGNOSTICS: there is 1 colinear relationships between the variables and the equations Colinear variables: c l k b e y tb Colinear equations 3 5 9 10 11 12 13 MODEL\_DIAGNOSTICS: The presence of a singularity problem typically indicates that there is one MODEL\_DIAGNOSTICS: redundant equation entered in the model block, while another non-redundant equation MODEL\_DIAGNOSTICS: is missing. The problem often derives from Walras Law.[/code] There must still be a mistake in your model equations. Your steady state for l is not between 0 and 1. Bond and capital are predetermined. Given the way you entered these variables with beginning of period stock notation, you need `predetermined_variables k b; ` Moreover, the exogenous processes should be backward-looking, i.e. `log(z) = rho*log(z(-1))+ x; % eq 2 ` instead of ```auto ```