Transform Celso's Chapter 5 (with competitive labor market))

Hi there

I wanted to transform Chapter 5 of the book ‘Understanding DSGE’ into a version without wage rigidities, but with a competitive labor market. The code runs, however I obtain very strange result (see code). The reaction at the beginning is quite odd. I would appreciate very much if somebody could help me. I’m currently working with different models in order to understand the modelling process and the features better.

ch5_celso_competitive_labor_market.mod (2.3 KB)

did you change the labor and capital demand too? Hmmm, why?

> //12-Demand for capital
> Y-K(-1) = R-P;
> //13-Demand for labor
> Y-L = Y - W;