Hi all, I am working on a model with trend and with 3 inputs Cobb Douglas production function in the form Yt = at* Kt^alpha * (Xt-1ht)^1-alpha * Bt^theta. I couldn’t transform the production side of the model to stationary form. If there is any solution suggestion I would be glad. Thanks very much.

What exactly is your problem? You did not even describe which variable has a trend and whether the Cobb-Douglas function is constant returns to scale?

Hi again Prof. Pfeifer, sorry for my inadequate description. I am trying to extent Garcia-Cicco et al (2010) model. Firstly, I would like to decompose external borrowing as FDI and FPI and introduce capital controls on FPI as in (Olanı, 2017). When I run the model without stating FDI (f) as a predetermined variable it works fine however when I set f as a predetermined variable I got the following error:

Residuals of the static equations:

Equation number 1 : 0

Equation number 2 : 0

Equation number 3 : 0

Equation number 4 : 0

Equation number 5 : 0

Equation number 6 : 0

Equation number 7 : 0

Equation number 8 : 0

Equation number 9 : 0

Equation number 10 : 0

Equation number 11 : 0

Equation number 12 : 0

Equation number 13 : 0

Equation number 14 : 0

Equation number 15 : 0

Equation number 16 : 0

Equation number 17 : 0

Equation number 18 : 0

Equation number 19 : 0

Equation number 20 : 0

Equation number 21 : 0

Equation number 22 : 0

Equation number 23 : 0

MODEL_DIAGNOSTICS: No obvious problems with this mod-file were detected.

Error using print_info (line 42)

Blanchard Kahn conditions are not satisfied: no stable equilibrium

Error in stoch_simul (line 100)

print_info(info, options_.noprint, options_);

Error in v3 (line 306)

info = stoch_simul(var_list_);

Error in dynare (line 278)

evalin(‘base’,fname) ;

What might be the problem?

Secondly, in the second mod file I tried to add the FDI into the production function. However, in resource constraint equation there seems to be an error. Any ideas about what am I doing wrong? Thanks…

q3.mod (6.0 KB)

q4.mod (6.0 KB)

- You need to check your timing assumptions. It seems strange that the return on FDI next period is not stochastic.
- For the second file, it seems strange that
`rf=-0.1531`

in your steady state file.