Problems with zero profit condition
Posted: Thu Apr 30, 2015 5:51 pm
Hello,
I'm new here and quite inexperienced with Dynare. Me and a fellow student are programming an OLG model for our master's thesis, inspired in part by Eggertsson and Mehrotra (2014).
So our model has three generations and the middle generation loans to the young. We also have capital in the model, so basically there are two different interest rates - one is rental rate on capital and one is the real rate on loans. The point is to shock an exogenous loaning restriction (for the young cohort) to push interest rates on loans down quite a bit.
Our model is quite "well behaved", in the sense that it can handle relatively big shocks. But the regular condition y = wage plus interest on capital, doesn't hold. There's a vast residual. Instead, in our model, the relation seems to be y = w + k*q + s , that is output equals wage plus rental income on capital PLUS savings in the form of capital investment! Which seems really weird.
Has anyone any suggestions to what might be the problem here? We're quite stuck here, so any help is deeply appreciated!
I'm new here and quite inexperienced with Dynare. Me and a fellow student are programming an OLG model for our master's thesis, inspired in part by Eggertsson and Mehrotra (2014).
So our model has three generations and the middle generation loans to the young. We also have capital in the model, so basically there are two different interest rates - one is rental rate on capital and one is the real rate on loans. The point is to shock an exogenous loaning restriction (for the young cohort) to push interest rates on loans down quite a bit.
Our model is quite "well behaved", in the sense that it can handle relatively big shocks. But the regular condition y = wage plus interest on capital, doesn't hold. There's a vast residual. Instead, in our model, the relation seems to be y = w + k*q + s , that is output equals wage plus rental income on capital PLUS savings in the form of capital investment! Which seems really weird.
Has anyone any suggestions to what might be the problem here? We're quite stuck here, so any help is deeply appreciated!