// This is a standarad RBC model with shocks to investment.

var y, c, inv, k, a, l, uc, ul, b;

varexo eps nu;

parameters rho, beta, alpha, delta, psi, eta;
alpha = 0.36;
rho   = 0.95;
beta  = 0.99;
delta = 0.025;
psi   = 2;
eta   = 2.5;


model;
uc=c^(-eta)*(1-l)^(psi*(1-eta));
ul=-psi*c^(1-eta)*(1-l)^(psi*(1-eta)-1);
-ul = uc*(1-alpha)*y/l;
beta*uc(1)/uc*(alpha*y(1)/k+1-delta) = 1;
y = exp(a)*k(-1)^alpha*l^(1-alpha);
k = inv + (1-delta)*k(-1);
inv = y - c;
a = rho*a(-1) + 0.01*eps;
b = nu;
end;

initval;
a   = 0;
b   = 0;
l   = (1-alpha)/(1+psi+(1-delta*alpha/(1/beta-1+delta)));
k   = ((1/beta-1+delta)/alpha)^(1/(alpha-1))*l;
y   = k^(alpha)*l^(1-alpha);
c   = y - delta*k;
inv = delta*k;
uc  = c^(-eta)*(1-l)^(psi*(1-eta));
ul  = -psi*c^(1-eta)*(1-l)^(psi*(1-eta)-1);
end;

vcov = [1,0;0,0];

order = 2;