# Transaction costs model SGU replication in Dynare

Hi. I’m working with the transaction costs approach proposed in Schmitt-Grohé and Uribe (2010, chapter 13), the only difference is that I added investment and capital with its correspondent transaction costs. I’m getting some odd results, then I’d be thankful if you know of some replication of this model, or some model that is similar in the transaction costs part.

Thanks!

I actually tried replicating the model myself from this paper from the same authors (that is fundamentally the same as 2010), using summarized equilibrium conditions from page 206. But get indeterminacy of equilibrium from BK conditions. I suspect it may have something to do with fiscal policy set-up, but not quite sure.

These are equivalences of the paper with my code notation (latex is paper notation, code snipped is my notation. The main “changes” is that I work with net rates and the paper with gross rates):
R_t\equiv1+i_t,
r_t\equiv1+r_t,
\pi_t\equiv1+pi_t

Also, I use for transaction costs function: s(v_t)=Av_t+B/v_t-\sqrt{AB}, as the same authors proposed in 2004. I’d really appreciate if you could help me.

Notes: I particularized utility to be compatible with balanced growth separable in all arguments, i.e. u(c_t,1-n_t)=c_t^{1-\sigma}/(1-\sigma)+\zeta(1-n_t)^{1-\chi}/(1-\chi). Also, I added a parameter \zeta\equivzzeta, which controls marginal utility of leisure for calibrating n_t=3/4 in steady state. More equivalences in the code are:
\sigma\equivsig
\chi\equivchi

*I had a typo in intratemporal condition, a minus sign was not correct, and fixed timing in some equations. Also tried turning off fiscal part by setting tau_t=0.

MODEL_DIAGNOSTICS: The following endogenous variables aren't present at the current period in the model: