I am new to Dynare and have been very impressed with its capabilities. At the moment, I am trying to replicate the results in Aoki Benigno Kiyotaki (2016) Monetary and Financial Policies in EMEs working paper. Since I am still learning a lot, I decided to go slow: from simple to more complex. I am trying to replicate the basic closed economy model in their set-up, then add sticky prices, then open up the economy, then add “bankers.” I am fine with former, but when I add Rotemberg’s sticky prices equations, I am running into a lot of problems.

- Steady state solver reaches maxit and fails to converge.

[quote]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

Error in steady (line 92)

print_info(info,options_.noprint, options_);[/quote]

- When I specify steady_state_model, everything goes throw but I get a warning:

and IRFs are explosive

[quote]stoch_simul:: The simulations conducted for generating IRFs to eA were explosive.

stoch_simul:: No IRFs will be displayed. Either reduce the shock size,

stoch_simul:: use pruning, or set the approximation order to 1.[/quote]

that is with second order perturbation, when I drop the order to 1, I get matrix singularity

[quote]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 would suggest me to troubleshoot this? What I am doing appears to be quite standards and I am just replicating paper. I don’t thing it is just the model’s steady state that is problematic here.

Thank you so much in advance for your help. I hope that with time, I could contribute to this great forum as well!

p.s. here is the link to the paper:

princeton.edu/~kiyotaki/pap … 4-2016.pdf

abk_replic_Rotemberg.mod (3.38 KB)

abk_replic_no_Rotemberg.mod (2.45 KB)