TANK model steady state problem: non-linear model

Steady state
1

Hello everyone,
Hello Professor Johannes Pfeifer,

Sorry for bothering you with this question but I would like to get some help regarding a steady state solution of a closed economy TANK (Ricardian and RoT households) DSGE model.

I am able to get the analytical solution of my steady state recursively but unfortunately I am not able to run my mod file and it shows that some equations have non zero residuals and the error reads as follows:

Residuals of the static equations:

Equation number 1 : 0 : Utility
Equation number 2 : -0.038211 : Ur_star
Equation number 3 : 0 : U_star
Equation number 4 : 0 : Welfare
Equation number 5 : 0 : Vr_star
Equation number 6 : 0 : V_star
Equation number 7 : 0 : Marginal Utility
Equation number 8 : 0 : Stochastic Discount factors
Equation number 9 : 0.47274 : FOC - labour supply
Equation number 10 : -0.89363 : 10
Equation number 11 : 0 : FOC - Euler equation - home assets
Equation number 12 : 0 : Capital producers FOC - Euler equation - home assets
Equation number 13 : 0 : Production
Equation number 14 : 0 : Intermediate Firm FOC - capital
Equation number 15 : 0 : Intermediate Firm FOC - labour
Equation number 16 : 0 : Rotemberg price adjsutment
Equation number 17 : 0 : NK Phillips curve
Equation number 18 : 0 : Firm profit = dividend
Equation number 19 : 0 : Aggregate Labour
Equation number 20 : 0 : Capital Producer- foc
Equation number 21 : 0 : Capital adjustment cost
Equation number 22 : 0 : X_star
Equation number 23 : 0 : K_star
Equation number 24 : 0 : Real interest rate
Equation number 25 : 0 : Household consumption, investment and government spending
Equation number 26 : 0 : Cr_star
Equation number 27 : 0 : Government budget deficit
Equation number 28 : -0.14169 : Government budget constraint
Equation number 29 : 0 : Resource Constraint
Equation number 30 : 0.35 : Public bond clearing
Equation number 31 : 0.083145 : Profit clearing
Equation number 32 : 0 : Foreign Interest rate rule
Equation number 33 : 0 : Foreign fiscal policy rule
Equation number 34 : 0 : Shock processes
Equation number 35 : 0 : 35
Equation number 36 : 0 : 36
Equation number 37 : 0 : Ylog_star
Equation number 38 : 0 : Clog_star
Equation number 39 : 0 : Pilog_star
Equation number 40 : 0 : Ilog_star
Equation number 41 : 0 : wlog_star
Equation number 42 : 0 : Nlog_star
Equation number 43 : 0 : Nrlog_star
Equation number 44 : 0 : Nslog_star

Error using print_info
The steadystate file did not compute the steady state

Error in steady (line 102)
print_info(info,options_.noprint, options_);

Error in TANK.driver (line 510)
steady;
Error in dynare (line 281)
evalin(‘base’,[fname ‘.driver’]);

I believe there are inconsistencies in between my steady state and the model equations but unfortunately I am not able to detect the sources.

Could you please help me to solve this issue? Any help is appreciated.

I have attached the mod file, steady state.m file and parameters separately.
console_TANK.m (3.7 KB)
param.mat (2.5 KB)
TANK.mod (10.1 KB)
TANK_steadystate.m (4.2 KB)

Thank you so much in advance

Amare

2

Given the size of your model, I can only recommend to simplify it to find the issues.

3

Hello Professor,

Thank you so much for your prompt response and suggestion.
As a way to reduce the size of the model, I switched off some parameters (distortionary tax on wage, capital and dividend) and reduced the model into smaller number of variables and equations without loosing the main skeleton of the model. Unfortunately, the problem still persists.

Residuals of the static equations:

Equation number 1 : 0 : Marginal Utility
Equation number 2 : 0 : Stochastic Discount factors
Equation number 3 : 0.52318 : FOC - labour supply
Equation number 4 : -1.117 : 4
Equation number 5 : 0 : FOC - Euler equation - home assets
Equation number 6 : 0 : Capital producers FOC - Euler equation - home assets
Equation number 7 : 0 : Production
Equation number 8 : 0 : Intermediate Firm FOC - capital
Equation number 9 : 0 : Intermediate Firm FOC - labour
Equation number 10 : 0 : Rotemberg price adjsutment
Equation number 11 : 0 : NK Phillips curve
Equation number 12 : 0 : Firm profit = dividend
Equation number 13 : 0 : Aggregate Labour
Equation number 14 : 0 : Capital Producer- foc
Equation number 15 : 0 : Capital adjustment cost
Equation number 16 : 0 : X_star
Equation number 17 : 0 : K_star
Equation number 18 : 0 : Real interest rate
Equation number 19 : 0 : Household consumption, investment and government spending
Equation number 20 : 0 : Cr_star
Equation number 21 : 0 : Government budget deficit
Equation number 22 : -0.16583 : Government budget constraint
Equation number 23 : 0 : Resource Constraint
Equation number 24 : 0.35 : Public bond clearing
Equation number 25 : 0.083145 : Profit clearing
Equation number 26 : 0 : Foreign Interest rate rule
Equation number 27 : 0 : Foreign fiscal policy rule
Equation number 28 : 0 : Shock processes

Error using print_info
The steadystate file did not compute the steady state

Error in steady (line 102)
print_info(info,options_.noprint, options_);

Error in TANK.driver (line 390)
steady;

Error in dynare (line 281)
evalin(‘base’,[fname ‘.driver’]);

Would you please suggest any other angle I should look into?
Thank you.
Amare
console_TANK_1.m (3.7 KB)
param.mat (2.5 KB)
TANK_1.mod (21.1 KB)
TANK_1_steadystate.m (4.2 KB)

4

Given that two equations related to the government budget show residuals, I would focus on those.

5

Ok Professor.
Thank you so much.