Hi everyone,

I am relatively new to Dynare and working on my first NK-DSGE model.

I am trying to try out a deterministic model with a productivity shock. But after finding the steady state equations and all when I am trying to run the model, it is giving the Warning: Matrix is singular to working precision.

Simulation of the perfect foresight model failed! Switching to a homotopy method.

I am attaching the mod file as well the .m file that has the steady state equations. If someone please tell me what is the error and how to rectify it.

equbndrg.mod (6.8 KB)

STEADYB.m (9.0 KB)

Many thanks in advance !

But your “steady state” values do not solve the model equations. So either these computations are wrong or the entered model equations. Also note that your model contains the price level instead of inflation. The former typically has a unit root, preventing the numerical computation of a steady state.

Thank you very much Professor for your reply.

The fact that we have multiple prices and to convert it into inflation is becoming tricky, is the reason I am using the prices.

The steady state equations I have calculated analytically (from the model equations only) and ran it on matlab with a given set of parameter values. Can still there be problem? Apologies if I am missing something.

Thank you

You can use prices, but the unit root implies that you need to provide an analytically computed steady state.

If you computed the steady state in Matlab and it worked there, then the equations implemented in Matlab and the ones implemented in Dynare must differ.

Dear Professor Pfeifer,

Thanks a lot for your help. The model ran but with an inflation (as you told) but when I am giving a contractionary Monetary policy shock, the interest rate is falling on impact(rather than rising).

Is the Taylor Rule that I have mentioned wrong or something else?

If you could kindly have a look at it.

Many thanks

Subhadeep

example_mp_for_inf.mod (4.6 KB)

Dear Professor,

Thank you very much for your response and sharing this thread.

Really helpful.

Regards,

Subhadeep