Uncertainty Shock - Closing Small Open Economy Models

Dear colleagues, good afternoon.

I am analyzing the problem of uncertainty for the Brazilian economy, and for this I plan to insert the shock of uncertainty in TFP in the model developed by Stephanie Schmitt-Grohé and Martín Uribe: “Closing small open economy models” (2003).

But I have a problem in defining the shock: I followed the recommendation to include a new equation that defines stochastic volatility and set the value of the standard deviation of volatility to 0 at steady state, but the dynare tells me that it is impossible to find the steady state .

In addition, in order to estimate these shocks, it is necessary to perform Taylor’s third-order approximation: did I define correctly in my code?

My code is attached.

Thank you very much for your attention !!

teste.mod (3.7 KB)

In the steady_state_model-block it needs to be

sigma_a = log(mean_sigma_a);