I am having an issue with the steady state of my model - Dynare reports that the ‘steadystate file did not compute the steady state’. The code runs if I use steady(nocheck), but I would like to understand why it won’t work otherwise given that I computed steady state by hand.

I ran the code and I encountered no issues besides WARNING: in the 'steady_state_model' block, variable 'eps' is not assigned a value. If I remove steady(nocheck);, the code seems to compute the steady state as well.

I am sorry, yes, now I get the same error, you are correct… I ran quickly your code and I do not know why I missed that. Sorry! Are you sure that your model is stationary? If it works with steady(nocheck), then the model has unit roots, right?

It indicates that your steady state computations are inconsistent with the entered equations. You suppressed the check with the nocheck option. If you remove it, Dynare will show the residuals of the equations. Focus on the ones with the biggest values like

Thank you. I corrected this - now there is the residual only in the wage equation, but I do not find any mistake there. Also, the steady(nocheck) does not run now reporting indeterminacy due to Blanchard & Kahn conditions not being satisfied.

(P.S. This is the simplified version of the model I asked about several months ago - I simplified 2-sector version to try to figure out why it won’t run).

Thank you very much, Prof. Pfeifer! I fixed both points, so the code runs now for the 1 sector model. noLFPnoSImodel.m (3.0 KB) noLFPnoSImodel.mod (4.5 KB)

However, when I extend the setup to 2 sectors, I still have an issue, and I cannot figure out why the code won’t run (it reports residuals in a few equations but I don’t see mistakes in the code). Would appreciate any suggestion.

You need to check why your computed steady state values are inconsistent with the three equations. Particularly, try to understand why the Euler equation does not hold.

Could there be something wrong with the function in the matlab file? I realized that if I change initial values for w_H, w_L and beta, there are no longer residuals in the three equations. However, Dynare reports that the rank condition is not verified (also, some of the estimated steady state values are too large, e.g. discount factor is larger than 1).

Changing the two parameters: mu (the mass of high-skilled household members) and varrho (the share of high sector firms’ weight in production) gives more reasonable steady state values. But, Dynare still reports the same issue: indeterminacy due to rank failure.

I rewrote the model so that the two sectors are completely symmetric and the code still does not run (all the equations are basically identical to the 1sector version in noLFPnoSImodel.mod which works). I do not see any reason why it should not run - would you perhaps have any other suggestions as I cannot figure this out? Thank you.

Your model features explosiveness. Quite often that is a timing issue. Sometimes it’s a problem with the economic mechanisms stabilizing state variables like debt or capital.

Thank you very much, Prof. Pfeifer. There could be a timing issue with debt variable, but I do not see what is wrong. It is strange that the code runs in 1-sector case and does not work with 2 completely identical sectors. Do you perhaps have any suggestions what to do, as I tried everything I could think of ? Thanks once again

It started working finally! I changed the timing of the asset and debt variables and the inflation coefficient in the Taylor rule - so now it works but only if the coefficient in the Taylor rule is low: 0.5.

Thank you! The timing for the two sector version is actually correct - the issue was that I altered the notation in one sector model. I realize now that in that case also the model runs with unaltered timing only if the inflation coefficient on Taylor rule is low so that is a bit odd.