Steady state of a MXN model (SG&U) variant

Steady state
1

Hello. I built a model similar to Uribe & Schmitt-Grohé’s MXN, developed in chapter 8 of their open economy macro textbook. What I did was “subdivide” the exports sector into “booming” and “lagging” export variants. These then get aggregated by a Cobb-Douglas function into a composite exportable good, and the rest of the model is identical to the MXN. The economy is subject to AR(1) processes on the prices of both of these goods (p^b and p^l). My trouble is with the steady state (using steady_state_model block). I solved for as many variables as I could by hand, and had to resort to an fsolve to solve numerically for a 13x13 system of equations. That solver isn’t getting it right, possibly because of the initial conditions. I really need help with getting the initial conditions right, which I suspect is the problem. All the files I’m using are attached.

mxn_steadystate_helper.m (1.2 KB)
mxn.mod (9.3 KB)
myfun.m (1.3 KB)

2

In such cases there is often still a mistake in the equilibrium conditions that makes the computations fail. Can you simplify the model by e.g. assuming a Cobb-Douglas instead of a CES function. That allows for easier debugging before extending the model.

3

Thank you prof. Pfeifer, I’ll try simplifying all aggregators to be Cobb-Douglas and see what I get.