Timing of capital in two sector economy

[kyri82]

Hello all,

I am building a two-sectoral model, and I have a question about the timing of sectoral-capital variables: In my model, T and N are sectors, hence kT is capital in sector T and kN is capital in sector N. Then, I assume that the economy's aggregate capital is simply: k = kT + kN.

However, I assume only one law of motion for aggregate capital such that: k = (1-delta)*k(-1) + i - written in Dynare language. It is clear to me that k is a predetermined variable and should be treated as such in the code, however I am not very sure how kT and kN should be treated. As predetermined, or as normal ones?

Thanks a lot!

Kyriacos

[jpfeifer]

In this case, only the total capital stock k is predetermined. Hence, you have to use a law of motion for capital

Code: Select all

k = (1-delta)*k(-1) + i

The total capital stock in the economy k(-1), which was decided by investment in the period before (hence the (-1) timing), can be freely divided between the individual sectors. Hence, kT and kN are determined at time t and not predetermined (normal variables). The corresponding resource constraint thus reads

Code: Select all

k(-1) = kT + kN

[ayse yilmaz]

Dear all,

I have a similar model; two country two sector model with capital. I assume that investment can only be done by using the output of traded sector but capital can be used in the production of both sectors. Even though I changed the timing of the resource constraint as you suggested, there are some issues with the results. The model solves however the results dont make any sense.

I would really appreciate any help regarding my model.

Best,
Ayse

[jpfeifer]

You need to be more specific what the problem is.

[eab]

Hi,
I am working on Smets and Wouters model and have introduced informal sector. I have achieved the steady state already. But the Blanchard-Kahn condition is not satisfied.
Could anyone help me out.thank you.

[jpfeifer]

Have you checked whether the problem outlined here affects your model?

[eab]

Hi,
Yes I do have capital in my model too but it's determined by the utilisation rate in both sectors. So I have.....
k_t=u_t*k_bar_t-1 and
k_bar_t is determined by the standard capital utilisation equation.
Does the timing condition also affect it?

[jpfeifer]

You need to sort out how the timing works in this case for both sectors.

[eab]

Hi,
Thank you very much. Its working perfectly.