# Steady state convegence for deterministic RBC!

At the moment I am running a deterministic version of an RBC model with intangible capital.

I calculated the steady state values for all the variables by hand and then formed different MATLAB functions for those variables.

Unfortunately, my model doesn’t converge. (it says spurious convergence)

Results:

I DON’T KNOW HOW TO PROCEED.  intangible1_switch.mod (916 Bytes)

The remaining functions:

[code]var ki k i y c psi;

parameters beta h delta deltai theta phi q;

beta = 0.979;
h = 0.3;
delta = 0.039;
deltai = 0.039;
theta = 0.212;
phi = 0.150;
q = 1;

model;
(1/c) = beta*(1/c(+1))(1 - delta + theta(k^(theta-1)(ki^phi)(h(+1)^(1-theta-phi))));
(1/c)q = beta(1/c(+1))(1 - deltai + phi(k^theta)(ki^(phi-1))(h(+1)^(1-theta-phi)));
psic/(1-h) = ((1-theta-phi)(k(-1)^theta)(ki(-1)^phi))/(h^(theta+phi));
c = y-i;
i = k+ki
q+(1-delta+theta*(k^(theta-1)(ki^phi)(h^(1-theta-phi)))(k(-1))+(1-deltai+(phi(k^theta)(ki^(phi-1))(h^(1-theta-phi))))(ki(-1)));
y = (k(-1)^theta)
(ki(-1)^phi)*(h^(1-theta-phi));

end;

initval;
ki = ((deltai + (1/beta) - 1)/((phi*((delta + (1/beta)- 1)/theta)^(theta/(theta-1))(h^(1-theta-phi)))))^(1/(theta+phi-1));
k = ((delta + (1/beta)- 1)/(theta
(ki^phi)(h^(1-theta-phi))))^(1/(theta-1));
i = (delta
(((delta + (1/beta)- 1)/(theta*(ki^phi)(h^(1-theta-phi))))^(1/(theta-1))))+(deltai((delta + (1/beta)- 1)/(theta*(ki^phi)(h^(1-theta-phi))))^(1/(theta-1)));
y = (k^theta)
(ki^phi)(h^(1-theta-phi));
c = y - i;
psi = (c
(1-theta-phi)(k^theta)(ki^phi))/((h^(theta+phi))*(1-h));
end;

resid;
As you can see, your computed values do not match the model equations. So either your steady state computation or the equations are still wrong. focus on the equations with a large residual

Thank you so much.

I checked my equations and there were a few errors. Now, I have managed to get all the residuals down to zero except for the second equation. I checked my model equation and there seems to be nothing wrong with it. So I changed one of my parameter values (deltai) for convergence to steady state.

When I run the command steady, there seems to be an error: “Not enough input arguments”.

I don’t know how to resolve this!

[quote][code]

dynare intangible1_switch

Configuring Dynare …
[mex] Generalized QZ.
[mex] Sylvester equation solution.
[mex] Kronecker products.
[mex] Sparse kronecker products.
[mex] Local state space iteration (second order).
[mex] Bytecode evaluation.
[mex] k-order perturbation solver.
[mex] k-order solution simulation.
[mex] Quasi Monte-Carlo sequence (Sobol).
[mex] Markov Switching SBVAR.

Starting Dynare (version 4.4.3).
Starting preprocessing of the model file …
Found 6 equation(s).
Evaluating expressions…done
Computing static model derivatives:

• order 1
Computing dynamic model derivatives:
• order 1
• order 2
Processing outputs …done
Preprocessing completed.
Starting MATLAB/Octave computing.

Residuals of the static equations:

Equation number 1 : 0
Equation number 2 : 3.0713e-05
Equation number 3 : 0
Equation number 4 : 0
Equation number 5 : 0
Equation number 6 : 0

EIGENVALUES:
Modulus Real Imaginary

``````    3.33e-16         3.33e-16                0
0.9506           0.9506                0
1.075            1.075                0
``````

There are 1 eigenvalue(s) larger than 1 in modulus
for 1 forward-looking variable(s)

The rank condition is verified.

Not enough input arguments.

Error in intangible1_switch (line 132)