Timing of capital in two-sector RANK model

Stochastic simulations
3

Hi Johannes,

Thanks a lot for the response! The issue was indeed related to not explicitly adding b_t = 0 to the mod.file. To simulate the model, therefore, I had to remove a redundant equation.

I had the following market clearing conditions:

  1. Y_ct = C_t + I_ct
  2. Y_vt = V_t + I_vt
  3. Y_t = Y_ct + Y_vt

Removing the first one from the system of equations, and adding b_t = 0, solved the problem. This seemed a bit strange to me, as I ought this to be a necessary equation to have in the model. However, as Y_ct is already specified later for the production function of the ‘c’ sector, maybe this makes sense.

Thanks again!

Kind regards, Alec