# SW2007 flexible economy

Hi guys, hope you can help me out on this one.

In the SW2007 model code how come that 1) there is no inflation equation and 2) why is the realwage formulated as it is?

[code]// flexible economy

``````      0*(1-calfa)*a + 1*a =  calfa*rkf+(1-calfa)*(wf)  ;
zcapf =  (1/(czcap/(1-czcap)))* rkf  ;
rkf =  (wf)+labf-kf ;
kf =  kpf(-1)+zcapf ;
invef = (1/(1+cbetabar*cgamma))* (  invef(-1) + cbetabar*cgamma*invef(1)+(1/(cgamma^2*csadjcost))*pkf ) +qs ;
pkf = -rrf-0*b+(1/((1-chabb/cgamma)/(csigma*(1+chabb/cgamma))))*b +(crk/(crk+(1-ctou)))*rkf(1) +  ((1-ctou)/(crk+(1-ctou)))*pkf(1) ;
cf = (chabb/cgamma)/(1+chabb/cgamma)*cf(-1) + (1/(1+chabb/cgamma))*cf(+1) +((csigma-1)*cwhlc/(csigma*(1+chabb/cgamma)))*(labf-labf(+1)) - (1-chabb/cgamma)/(csigma*(1+chabb/cgamma))*(rrf+0*b) + b ;
yf = ccy*cf+ciy*invef+g  +  crkky*zcapf ;
yf = cfc*( calfa*kf+(1-calfa)*labf +a );
wf = csigl*labf 	+(1/(1-chabb/cgamma))*cf - (chabb/cgamma)/(1-chabb/cgamma)*cf(-1) ;
kpf =  (1-cikbar)*kpf(-1)+(cikbar)*invef + (cikbar)*(cgamma^2*csadjcost)*qs ;
``````

// sticky price - wage economy

``````      mc =  calfa*rk+(1-calfa)*(w) - 1*a - 0*(1-calfa)*a ;
zcap =  (1/(czcap/(1-czcap)))* rk ;
rk =  w+lab-k ;
k =  kp(-1)+zcap ;
inve = (1/(1+cbetabar*cgamma))* (  inve(-1) + cbetabar*cgamma*inve(1)+(1/(cgamma^2*csadjcost))*pk ) +qs ;
pk = -r+pinf(1)-0*b +(1/((1-chabb/cgamma)/(csigma*(1+chabb/cgamma))))*b + (crk/(crk+(1-ctou)))*rk(1) +  ((1-ctou)/(crk+(1-ctou)))*pk(1) ;
c = (chabb/cgamma)/(1+chabb/cgamma)*c(-1) + (1/(1+chabb/cgamma))*c(+1) +((csigma-1)*cwhlc/(csigma*(1+chabb/cgamma)))*(lab-lab(+1)) - (1-chabb/cgamma)/(csigma*(1+chabb/cgamma))*(r-pinf(+1) + 0*b) +b ;
y = ccy*c+ciy*inve+g  +  1*crkky*zcap ;
y = cfc*( calfa*k+(1-calfa)*lab +a );
pinf =  (1/(1+cbetabar*cgamma*cindp)) * ( cbetabar*cgamma*pinf(1) +cindp*pinf(-1)
+((1-cprobp)*(1-cbetabar*cgamma*cprobp)/cprobp)/((cfc-1)*curvp+1)*(mc)  )  + spinf ;
w =  (1/(1+cbetabar*cgamma))*w(-1)
+(cbetabar*cgamma/(1+cbetabar*cgamma))*w(1)
+(cindw/(1+cbetabar*cgamma))*pinf(-1)
-(1+cbetabar*cgamma*cindw)/(1+cbetabar*cgamma)*pinf
+(cbetabar*cgamma)/(1+cbetabar*cgamma)*pinf(1)
+(1-cprobw)*(1-cbetabar*cgamma*cprobw)/((1+cbetabar*cgamma)*cprobw)*(1/((clandaw-1)*curvw+1))*
(csigl*lab + (1/(1-chabb/cgamma))*c - ((chabb/cgamma)/(1-chabb/cgamma))*c(-1) -w)
+ 1*sw ;
r =  crpi*(1-crr)*pinf
+cry*(1-crr)*(y-yf)
+crdy*(y-yf-y(-1)+yf(-1))
+crr*r(-1)
+ms  ;
a = crhoa*a(-1)  + ea;
b = crhob*b(-1) + eb;
g = crhog*(g(-1)) + eg + cgy*ea;
qs = crhoqs*qs(-1) + eqs;
ms = crhoms*ms(-1) + em;
spinf = crhopinf*spinf(-1) + epinfma - cmap*epinfma(-1);
epinfma=epinf;
sw = crhow*sw(-1) + ewma - cmaw*ewma(-1) ;
ewma=ew;
kp =  (1-cikbar)*kp(-1)+cikbar*inve + cikbar*cgamma^2*csadjcost*qs ;[/code]``````

There is (pinf=price inflation)

It is defined as usual (W/P)