Steady state of open economy New Keynesian model

[tom_mercer]

Hello,

My model is an open economy model of the New Keynesian variety. I have been working on the attached code for a few weeks now, and it has cleared pre-processing and preliminary steps. However, from the error messages, it seems that there is an issue with the steady state?

Very grateful if anyone knows what the problem is.

My best.

[jpfeifer]

Use the

Code: Select all

resid(1);


command. Your problem is that your model is log-linear, but not completely log-linearized. In particular, you have

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i = rho + phi_pi_home*pi_home + phi_y_ag*y_ag_gap + nu;

The steady state of i is rho and not 0. Thus, your initial values do not reflect that the interest rate is not in percentage deviations from the steady state and does not have mean 0.

[tom_mercer]

Many thanks, jpfeifer!