Two-Counrty-Model DSGE improvements needed - deadline :/

Hi guys,

we are a few Master’s Economics’ students at the University of Stellenbosch and we have a project due in 2 days (21May 2012).

The GOOD NEWS: we have a running model.
It is based on the Obstfeld-Rogoff Two-Country Model 1995 (as described in Walsh, 2003, Chapter 6).
We are tesing a monetary shock and a technology shock in the DSGE model via Dynare 4.25. in Matlab R2009a.

Why do I post here? - we would like to ask you a for your thoughts on it & we want to contribute. It is a nice model to start off with. Many papers are based on adjusted version of this basic case but there is no such code in the forum.

Please, if you can provide an idea on improving the one of the following things:

  1. Specification - the monetary shock does not show any effect :confused:
    Any suggestions, on what is easy to add/change to make it a better model?

  2. Calibration - we calibrated according to US data but the parameters are from all over the place and simplified roughly :confused:
    …i.e. We would like to find a reliable source for our shock persistence parameters.

  3. We cannot observe the Dornbush exchange rate overshooting - maybe we fixed too many things / hampering the dynamics?

  4. Thanks guys. We will keep updating. The hours we’ve put in should help others, too.
    fridayevening.mod (2.57 KB)

surely there was no chance to see effects of monetary shocks since therte are no nominal rigidities.

We changed quite a bit to introduce them but it gives us this error:

[code]??? Error using ==> print_info at 52
One of the eigenvalues is close to 0/0 (the absolute value of numerator and
denominator is smaller than 1e-6)

Error in ==> check at 51
print_info(info, options_.noprint);

Error in ==> saturday5 at 124

Error in ==> dynare at 120
evalin(‘base’,fname) ;[/code]

Any ideas?
saturday5.mod (2.46 KB)

hello again.

this is the latest stage. Nominal rigidities don’t seem to work.


Eigenvalue close to 0/0 (numerator and denominator).

please check if you have a minute.

best, Bastian.
sundaylunch.mod (1.71 KB)

If you use

the result is

[quote]model_diagnostic: the Jacobian of the static model is singular
there is 1 colinear relationships between the variables and the equations
Colinear variables:
Colinear equations
1 2 3 4 5 6 8 9[/quote]

You will find many posts dealing with this issue in the forum. The upshot often is that you have one redundant equation due to Walras Law and that a different equation is missing.

Dear Bastia,
Can you give me the working paper which related to this Dynare code?
Thank you so much