Dynare forums

Posted: **Tue Jun 14, 2016 1:52 am**

Hi,
I’m having some problems in computing the steady state under optimal policy with ramsey policy. Can you help me, please?
My problem is the following:
1. I have derived by hand the optimal values for the steady state of all endogenous variables (55 variables) given the optimal value of the policy instruments (6 instruments). I have entered these values in the “steady state model” block.
2. I have provided the optimal values of the instruments in the “initval” block. Actually, these values are the steady state values.
3. I have declared the name of the endogenous variables that are the instruments within the ramsey policy command (instruments=()).
4. I ran the .mod file with dynare unstable version: 13-Jun-2016. I’m using the unstable version because I read in the forum that the stable version 4.4.3. has a bug related to auxiliary variables when using instruments. The results I obtain are:

Code: Select all: evaluate_steady_state: The steady state for the Ramsey problem could not be computed. evaluate_steady_state: The steady state computation stopped with the following instrument values:: tauIVA_sec2 0.100000 tauIVA_sec3 0.100000 tauK_dec2 0.300000 tauK_dec3 0.300000 tauL_dec2 0.250000 tauL_dec3 0.300000 evaluate_steady_state: The following equations have non-zero residuals: Auxiliary Ramsey equation number 1: -0.032906 Auxiliary Ramsey equation number 2: -0.033535 Auxiliary Ramsey equation number 3: 0.017759 Auxiliary Ramsey equation number 4: 0.017131 Auxiliary Ramsey equation number 5: -0.015146 Auxiliary Ramsey equation number 6: -0.016404 Auxiliary Ramsey equation number 7: 0.012183 Auxiliary Ramsey equation number 8: 0.003006 Auxiliary Ramsey equation number 9: 0.003866 Auxiliary Ramsey equation number 10: 0.000507 Auxiliary Ramsey equation number 11: 0.008317 Auxiliary Ramsey equation number 12: 0.002499 Auxiliary Ramsey equation number 13: 0.074317 Auxiliary Ramsey equation number 14: -0.003846 Auxiliary Ramsey equation number 15: -0.017203 Auxiliary Ramsey equation number 16: -0.003085 Auxiliary Ramsey equation number 17: -0.013428 Auxiliary Ramsey equation number 18: 0.000196 Auxiliary Ramsey equation number 19: 0.000070 Auxiliary Ramsey equation number 20: -0.000171 Auxiliary Ramsey equation number 21: -0.000172 Auxiliary Ramsey equation number 22: -0.006400 Auxiliary Ramsey equation number 23: 0.001580 Auxiliary Ramsey equation number 24: -0.025349 Auxiliary Ramsey equation number 25: 0.039403 Auxiliary Ramsey equation number 26: -0.001604 Auxiliary Ramsey equation number 27: -0.001282 Auxiliary Ramsey equation number 28: 0.002554 Auxiliary Ramsey equation number 29: 0.015522 Auxiliary Ramsey equation number 30: 0.002554 Auxiliary Ramsey equation number 31: -0.009827 Auxiliary Ramsey equation number 32: -0.003846 Auxiliary Ramsey equation number 33: 0.017102 Auxiliary Ramsey equation number 34: 0.044655 Auxiliary Ramsey equation number 35: 0.038571 Auxiliary Ramsey equation number 36: 0.044655 Auxiliary Ramsey equation number 37: 0.038762 Auxiliary Ramsey equation number 38: 0.039403 Auxiliary Ramsey equation number 39: 0.039403 Auxiliary Ramsey equation number 40: 0.005252 Auxiliary Ramsey equation number 41: -0.000832 Auxiliary Ramsey equation number 42: -0.003386 Auxiliary Ramsey equation number 43: 0.014827 Auxiliary Ramsey equation number 44: 0.020721 Auxiliary Ramsey equation number 45: 0.074847 Auxiliary Ramsey equation number 46: 0.080740 Auxiliary Ramsey equation number 47: 0.003053 Auxiliary Ramsey equation number 48: 0.000400 Auxiliary Ramsey equation number 49: 0.003121 Auxiliary Ramsey equation number 50: 0.000938 Auxiliary Ramsey equation number 51: 0.074318 Auxiliary Ramsey equation number 52: 0.074318 Auxiliary Ramsey equation number 53: 0.074313 Auxiliary Ramsey equation number 54: 0.074317 Auxiliary Ramsey equation number 55: -0.003386 Equation number 1: 0.049710 Equation number 2: 0.041753 Equation number 3: -0.028472 Equation number 4: -0.028475 Equation number 5: -0.039529 Equation number 6: -0.086000

HOWEVER, when I use dynare version 4.4.3 and I (i) set the optimal values for the steady state of all endogenous variables (including the 6 intruments) in the “initval” block instead of setting the optimal values in the “steady state model” block, and (ii) deleting the option “instruments” within the ramsey policy command, Dynare solves the model and reaches the steady state. Nevertheless, the “resid” command reports the following:

Code: Select all: Residuals of the static equations: Equation number 1 : -0.03276 Equation number 2 : -0.033378 Equation number 3 : 0.017772 Equation number 4 : 0.017153 Equation number 5 : -0.014988 Equation number 6 : -0.016224 Equation number 7 : 0.011865 Equation number 8 : 0.002914 Equation number 9 : 0.0034553 Equation number 10 : 0.00036206 Equation number 11 : 0.0084097 Equation number 12 : 0.0025519 Equation number 13 : 0.0743 Equation number 14 : -0.0040414 Equation number 15 : -0.01709 Equation number 16 : -0.0032417 Equation number 17 : -0.013339 Equation number 18 : 0.0001925 Equation number 19 : 6.8891e-05 Equation number 20 : -0.00016844 Equation number 21 : -0.00016878 Equation number 22 : -0.0064069 Equation number 23 : 0.0015816 Equation number 24 : -0.025375 Equation number 25 : 0.039392 Equation number 26 : -0.0016012 Equation number 27 : -0.0012908 Equation number 28 : 0.0023655 Equation number 29 : 0.015537 Equation number 30 : 0.0023655 Equation number 31 : -0.0098379 Equation number 32 : -0.0040414 Equation number 33 : 0.017119 Equation number 34 : 0.044649 Equation number 35 : 0.038559 Equation number 36 : 0.044649 Equation number 37 : 0.03875 Equation number 38 : 0.039392 Equation number 39 : 0.039392 Equation number 40 : 0.0052569 Equation number 41 : -0.00083322 Equation number 42 : -0.0033918 Equation number 43 : 0.014724 Equation number 44 : 0.020623 Equation number 45 : 0.074932 Equation number 46 : 0.080831 Equation number 47 : 0.0054035 Equation number 48 : 0.00056621 Equation number 49 : 0.0062487 Equation number 50 : 0.0018961 Equation number 51 : 0.0743 Equation number 52 : 0.0743 Equation number 53 : 0.074295 Equation number 54 : 0.074299 Equation number 55 : -0.0033918 Equation number 56 : 0.049704 Equation number 57 : 0.041739 Equation number 58 : -0.028463 Equation number 59 : -0.028466 Equation number 60 : -0.039472 Equation number 61 : -0.08606

I double checked the file “ed3_static.m” after running the 4.4.3 version and I founded the following similarities between the “resid” reports of the unstable and stable dynare versions:
(i) residual(1) to residual(55) equations correspond to the residuals of the Lagrange multipliers of my 55 endogenous variables (equivalent to the “Auxiliary Ramsey equation number 1 to 55”, in the resid report of the unstable version).
(ii) residual(56) to residual(61) equations are the Lagrange multipliers of my instruments (equivalent to “Equation number 1 to 6”, in the resid report of the unstable version).
(iii) residual(62) to residual(116) are the residuals of my 55 model equations. These residuals are zero according to the “ans” report generated in the matlab workspace. Consequently, the optimal values I derived for the steady state of all the endogenous variables (55 variables), given the value of the 6 policy instruments, are correct!. Moreover, when I disable the ramsey policy command and solve my model with the steady command (in both stable and unstable versions) I obtain the optimal steady state, residuals of the static equations are zero, and the rank condition is verified. It is, my initial values are right.
(iv) residual(117) to residual(124) are the residuals of the 8 auxiliary equations (all of them zero according to the “ans” report generated in the matlab workspace) generated by dynare. These equations are included in the “ed3_set_auxiliary_variables.m”

IT’S MY IMPRESSION AND I COULD BE WRONG, THAT THE dynare version 4.4.3 IGNORES THE RESULTS OF THE RESIDUAL EQUATIONS OF THE LAGRANGE MULTIPLIERS, AND ONLY TAKES INTO CONSIDERATION THAT THE RESIDUALS OF ALL ENDOGENOUS VARIABLES ARE ZERO FOR PROVIDING A SOLUTION. IT SEEMS THAT THE OPPOSITE HAPPENS FOR THE UNSTABLE VERSION…

QUESTIONS/HELP:
1. Is there a way of ignoring the residuals of the lagrange multipliers when using the unstable version?, or
2. Is there a way in which dynare can compute/solve with more precision the optimal values of the lagrange multipliers such that their residual equations be zero?

I know that probably one solution could be to use the stable version, set the optimal values of my entire endogenous variables and instruments in the initialval block, set the ramsey policy command without instruments, let that Dynare solves the problem, and don’t pay attention to the residuals of the auxiliary variables… However, I’m going to run a large model and I prefer to reduce computing time when setting the optimal values in the steady state model block, and let Dynare solve the problem with only as many unkowns as there are instruments, rather than solving the model with as many unknowns as there are endogenous variables in the case of setting the optimal values in the initialval block…

Thanks in advance,
Eduardo

ed3.mod: .MOD FILE; (16.85 KiB) Downloaded 137 times

pruebaparams.m: PARAMETERS OF THE MODEL; (3.18 KiB) Downloaded 109 times

Posted: **Wed Jun 15, 2016 1:23 am**

Hi,
I think I have found the solution to my problem; however, I would like to double check with you… Would you mind to tell me if I’m correct, or if I’m saying something that it doesn’t make sense?

My problem was that I couldn’t obtain the steady state under optimal policy with ramsey policy command when using the dynare unstable version: 13-Jun-2016 and specifying the optimal steady state values of all endogenous variables in the “steady state model” block, and the optimal values of the instruments in the “initval” block.

In contrast, when using dynare 4.4.3. and specifying the optimal steady state values of all endogenous variables, and instrument values, in the “initval” block I was able to find the steady state.

I think the problem is in the “evaluate_steady_state.m” matlab file of the unstable version. Within the section ”%test whether it solves model conditional on the instruments” there is a loop for evaluating the residuals of all variables EXCEPT for the Lagrange multipliers:

Code: Select all: if max(abs(resids(n_multipliers+1:end))) > options.dynatol.f %does it solve for all variables except for the Lagrange multipliers

I don’t know how, but it seems that this loop is including the residuals of the Lagrange multipliers when testing if the optimal values of all endogenous variables, provided in the “steady state model” block, solve the model conditional on the instruments values.

How I know this? Well, I replaced the “evaluate_steady_state.m” of the unstable version by the “evaluate_steady_state.m” file of dynare version 4.4.3. Result: it works.

However, when I type the “resid” command after solution, I obtain the following report:

Code: Select all: Residuals of the static equations: Equation number 1 : -0.032906 Equation number 2 : -0.033535 Equation number 3 : 0.017759 Equation number 4 : 0.017131 Equation number 5 : -0.015146 Equation number 6 : -0.016404 Equation number 7 : 0.012183 Equation number 8 : 0.0030062 Equation number 9 : 0.0038661 Equation number 10 : 0.00050685 Equation number 11 : 0.0083168 Equation number 12 : 0.0024993 Equation number 13 : 0.074317 Equation number 14 : -0.0038465 Equation number 15 : -0.017203 Equation number 16 : -0.0030854 Equation number 17 : -0.013428 Equation number 18 : 0.00019581 Equation number 19 : 7.0083e-05 Equation number 20 : -0.00017133 Equation number 21 : -0.0001717 Equation number 22 : -0.0064003 Equation number 23 : 0.0015799 Equation number 24 : -0.025349 Equation number 25 : 0.039403 Equation number 26 : -0.0016035 Equation number 27 : -0.0012816 Equation number 28 : 0.0025538 Equation number 29 : 0.015522 Equation number 30 : 0.0025538 Equation number 31 : -0.0098272 Equation number 32 : -0.0038465 Equation number 33 : 0.017102 Equation number 34 : 0.044655 Equation number 35 : 0.038571 Equation number 36 : 0.044655 Equation number 37 : 0.038762 Equation number 38 : 0.039403 Equation number 39 : 0.039403 Equation number 40 : 0.0052515 Equation number 41 : -0.00083236 Equation number 42 : -0.0033858 Equation number 43 : 0.014827 Equation number 44 : 0.020721 Equation number 45 : 0.074847 Equation number 46 : 0.08074 Equation number 47 : 0.0030534 Equation number 48 : 0.0004003 Equation number 49 : 0.0031209 Equation number 50 : 0.00093787 Equation number 51 : 0.074318 Equation number 52 : 0.074318 Equation number 53 : 0.074313 Equation number 54 : 0.074317 Equation number 55 : -0.0033858 Equation number 56 : 0.04971 Equation number 57 : 0.041753 Equation number 58 : -0.028472 Equation number 59 : -0.028475 Equation number 60 : -0.039529 Equation number 61 : -0.086

I’m pretty sure that these values correspond to the residuals of the Lagrange multipliers equations. It is my impression that dynare displays the max absolute value between the residual of equation x and the corresponding lagrange multiplier residual for equation x. However, the report doesn’t specify if the residual comes from the Auxiliary variable (multiplier) or from the residual of equation x; instead, it always displays: “Equation number x”. To be honest, I don’t know if it is a real bug and if it might happens in the “resid.m” file or in the “evaluate_steady_state.m” file

Summarizing, do you think there could be a bug (in the unstable version when testing whether the “steady state model” block solves the model and in both versions when using the “resid” command) or I’m totally out of order?

Thanks,
Eduardo

Posted: **Wed Jun 15, 2016 9:38 am**

Dear Eduardo,
thanks for reporting this. We will look into it. Note that

Code: Select all: resid

is generally not suitable for Ramsey.

Posted: **Wed Jun 15, 2016 9:49 am**

Dear Eduardo,
are you sure your steady_state_model is valid for all values of the instruments. When I set

Code: Select all: tauL_dec3=0.5; //POLICY INSTRUMENT

I get

evaluate_steady_state: The steady state file does not solve the steady state for the Ramsey problem.
evaluate_steady_state: Conditional on the following instrument values:
tauIVA_sec2 0.100000
tauIVA_sec3 0.100000
tauK_dec2 0.300000
tauK_dec3 0.300000
tauL_dec2 0.250000
tauL_dec3 0.500000
evaluate_steady_state: the following equations have non-zero residuals:
Equation number 23: 2.000000
Equation number 24: 2.000000
Equation number 33: -11.884216
Equation number 34: -1.715784
Equation number 35: 12.240000
Equation number 36: 1.360000

Moreover, with the values you provide, I get

> In dyn_ramsey_static>dyn_ramsey_static_1 (line 152)
In dyn_ramsey_static>@(x)dyn_ramsey_static_1(x,M,options_,oo) (line 43)
In dyn_ramsey_static (line 70)
In evaluate_steady_state (line 120)
In resol (line 104)
In stoch_simul (line 83)
In ramsey_policy (line 25)
In ed3 (line 1034)
In dynare (line 223)
Warning: Rank deficient, rank = 54, tol = 3.517636e-12.

after which the error message your report appears. Therefore it seems the steady state of the Ramsey problem cannot be found. Dynare 4.4.3 did not check whether a solution was actually found.

Posted: **Wed Jun 15, 2016 7:19 pm**

Hello Johannes,

Thanks so much for your quick response!

Yes, I'm sure the model works for all values of the instruments. However, when you want to change the value of one instrument is necessary to (i) disable the “steady_state_model” block and (ii)change the instruments from the “variables” block to the “varexo” block.

I changed “tauL_dec3=.5” and dynare obtains the following steady state:

Code: Select all: STEADY-STATE RESULTS: L_dec2_sec2 48.1495 L_dec2_sec3 48.1495 L_dec3_sec2 19.8828 L_dec3_sec3 47.8828 LS_sec2 68.0323 LS_sec3 96.0323 KS_sec2 77.7512 KS_sec3 39.1969 K_dec2_sec2 8.70724 K_dec2_sec3 19.2842 K_dec3_sec2 69.044 K_dec3_sec3 19.9127 PK 1.83487 XS_sec2 181.743 XS_sec3 173.25 VA_sec2 145.783 VA_sec3 135.229 W_sec2 1 W_sec3 1 R_sec2 1 R_sec3 1 E_sec2 8.125 E_sec3 75.925 M_sec3 30 ER 1 V_sec2 21.5021 V_sec3 24.3776 D_sec2 173.618 D_sec3 100.875 X_sec2 173.618 X_sec3 130.875 XD_sec2 181.743 XD_sec3 176.8 PD_sec2 1 PD_sec3 1 P_sec2 1 P_sec3 1 PM_sec2 1 PM_sec3 1 PWE_sec2 1 PWE_sec3 1 ZG 121.143 c_dec2_sec2 4.00376 c_dec2_sec3 2.06842 c_dec3_sec2 3.49336 c_dec3_sec3 1.29614 I_dec2_sec2 6.78893 I_dec2_sec3 15.0356 I_dec3_sec2 25.2113 I_dec3_sec3 7.27109 rho_dec3_sec2 1.83487 rho_dec3_sec3 1.83487 rho_dec2_sec2 1.83487 rho_dec2_sec3 1.83487 TR_dec1 10.9432 Approximated value of planner objective function - with initial Lagrange multipliers set to 0: 531.293 - with initial Lagrange multipliers set to steady state: 531.293

Thanks,
Eduardo

Posted: **Wed Jun 15, 2016 7:36 pm**

I was explicitly referring to the steady_state_model-block, not the model. Whatever you put for the instruments into initval, the steady_state_model-block must deliver the correct steady state. What you describe with using initval just means Dynare is able to compute the steady state numerically.

Posted: **Wed Jun 15, 2016 8:01 pm**

Sorry for my mistake, I misunderstood your question… I just run the model with tauL_dec3=.5, and you are right the steady_state_model-block delivers the correct steady state. It is the result:

Code: Select all: STEADY-STATE RESULTS: L_dec2_sec2 50 L_dec2_sec3 50 L_dec3_sec2 20 L_dec3_sec3 48 LS_sec2 70 LS_sec3 98 KS_sec2 80 KS_sec3 40 K_dec2_sec2 20 K_dec2_sec3 20 K_dec3_sec2 60 K_dec3_sec3 20 PK 1.83487 XS_sec2 187 XS_sec3 176.8 VA_sec2 150 VA_sec3 138 W_sec2 1 W_sec3 1 R_sec2 1 R_sec3 1 E_sec2 8.125 E_sec3 75.925 M_sec3 30 ER 1 V_sec2 22 V_sec3 25 D_sec2 178.875 D_sec3 100.875 X_sec2 178.875 X_sec3 130.875 XD_sec2 187 XD_sec3 176.8 PD_sec2 1 PD_sec3 1 P_sec2 1 P_sec3 1 PM_sec2 1 PM_sec3 1 PWE_sec2 1 PWE_sec3 1 ZG 123.8 c_dec2_sec2 3.68888 c_dec2_sec3 1.75354 c_dec3_sec2 3.80666 c_dec3_sec3 1.60944 I_dec2_sec2 15.5938 I_dec2_sec3 15.5938 I_dec3_sec2 21.9089 I_dec3_sec3 7.30298 rho_dec3_sec2 1.83487 rho_dec3_sec3 1.83487 rho_dec2_sec2 1.83487 rho_dec2_sec3 1.83487 TR_dec1 13.6 tauIVA_sec2 0.1 tauIVA_sec3 0.1 tauK_dec2 0.3 tauK_dec3 0.3 tauL_dec2 0.25 tauL_dec3 0.5 Approximated value of planner objective function - with initial Lagrange multipliers set to 0: 521.8321 - with initial Lagrange multipliers set to steady state: 523.2493

Attached you will find the file again

Thanks for your help!,
Eduardo

Posted: **Wed Jun 15, 2016 9:33 pm**

When i run your file on the unstable version, it says

evaluate_steady_state: the following equations have non-zero residuals:
Equation number 23: 2.000000
Equation number 24: 2.000000
Equation number 33: -11.884216
Equation number 34: -1.715784
Equation number 35: 12.240000
Equation number 36: 1.360000

Dynare 4.4.3 did not check for correctness of the provided values. The unstable version does. And the latter complains that your steady_state_file is not correct. So how did you obtain the above results in your last post?

Posted: **Wed Jun 15, 2016 10:13 pm**

I'm obtaining these results when I replaced the “evaluate_steady_state.m” of the unstable version with the “evaluate_steady_state.m” file of dynare version 4.4.3.

What I think, and I might be wrong, is that the “evaluate_steady_state.m” of the unstable version is evaluating the residuals of the Lagrange multipliers when testing if the values provided in the “steady state model” block solve the model conditional on the instruments values, and this shouldn't happen. Again, probably I'm wrong....

In section ”%test whether it solves model conditional on the instruments” of the “evaluate_steady_state.m” there is a loop for evaluating the residuals of all variables EXCEPT for the Lagrange multipliers:

Code: Select all: if max(abs(resids(n_multipliers+1:end))) > options.dynatol.f %does it solve for all variables except for the Lagrange multipliers

When I replace the .m file the model works. Actually, if you don't replace the “evaluate_steady_state.m” file of the unstable version, but changes the "options.dynatol.f" to "options_.dynatol.f = 1e-1;" in the "global_initialization.m" the model will work too.

Please let me know if you obtain the same results after replacing the .m file in the unstable version or by changing the "options.dynatol.f"

Again, thanks for helping me in this issue,
Eduardo

Posted: **Wed Jun 15, 2016 10:41 pm**

As I said: replacing the evaluate_steady_state-file is not a good idea. There was a reason we changed the file, because incorrect values could be accepted as steady states. Setting the tolerance to a large number has the same effect: you are accepting a non-steady state as the steady state. Do you have good reason to believe there is a bug here, because I think the current behavior is correct and your steady_state_model-block is wrong. To see this, fix the instruments to their initval-values in the model-block. This model should have the same steady state for the endogenous variables as the Ramsey-model. But when I use your steady_state-file, Dynare complains.
I use

Code: Select all: // THIS MODEL IS “ed3.mod” //VARIABLES, PARAMETERS AND EXOGENOUS VARIABLES DECLARATION //------------------------- // A) VARIABLES //------------------------- var L_dec2_sec2 L_dec2_sec3 L_dec3_sec2 L_dec3_sec3 LS_sec2 LS_sec3 KS_sec2 KS_sec3 K_dec2_sec2 K_dec2_sec3 K_dec3_sec2 K_dec3_sec3 PK XS_sec2 XS_sec3 VA_sec2 VA_sec3 W_sec2 W_sec3 R_sec2 R_sec3 E_sec2 E_sec3 M_sec3 ER V_sec2 V_sec3 D_sec2 D_sec3 X_sec2 X_sec3 XD_sec2 XD_sec3 PD_sec2 PD_sec3 P_sec2 P_sec3 PM_sec2 PM_sec3 PWE_sec2 PWE_sec3 ZG c_dec2_sec2 c_dec2_sec3 c_dec3_sec2 c_dec3_sec3 I_dec2_sec2 I_dec2_sec3 I_dec3_sec2 I_dec3_sec3 rho_dec3_sec2 rho_dec3_sec3 rho_dec2_sec2 rho_dec2_sec3 TR_dec1 /////////////////////////////////////////////////////////////////////////////////////// tauIVA_sec2 tauIVA_sec3 tauK_dec2 tauK_dec3 tauL_dec2 tauL_dec3 //POLICY INSTRUMENTS /////////////////////////////////////////////////////////////////////////////////////// ; //----------------------------------------------------------- // B) EXOGENOUS VARIABLES. //----------------------------------------------------------- varexo epsG ; //---------------------------------------------------------------- // C) PARAMETERS. //---------------------------------------------------------------- parameters gamma_dec2_sec2 gamma_dec2_sec3 gamma_dec3_sec2 gamma_dec3_sec3 beta_dec2_sec2 beta_dec2_sec3 beta_dec3_sec2 beta_dec3_sec3 betatilde_dec2 betatilde_dec3 delta_dec2 delta_dec3 phi_ME phi_C sigma_sec2 sigma_sec3 mu_sec2 mu_sec3 b_sec2 b_sec3 va_sec2 va_sec3 c_sec2 c_sec3 a_sec2_secB2 a_sec3_secB2 a_sec2_secB3 a_sec3_secB3 alpha_sec2 alpha_sec3 psi_dec2 psi_dec3 N_dec2_sec2 N_dec2_sec3 N_dec3_sec2 N_dec3_sec3 G_sec2 G_sec3 Phat_sec2 Phat_sec3 Ehat_sec2 Ehat_sec3 Fhat eta_sec2 eta_sec3 M_sec2 tauM_sec2 tauM_sec3 s_sec2 s_sec3 pi_dec2 pi_dec3 rhoG sigmaG ; //-------------------------- // D) CALIBRATION //-------------------------- pi_dec2=.5; // SOCIAL PLANNER WEIGHT OR FAVOURITISM TOWARDS DECILE2 AGENTS pi_dec3=.5; // SOCIAL PLANNER WEIGHT OR FAVOURITISM TOWARDS DECILE3 AGENTS rhoG = 0.96; // demand-side shock persistence sigmaG = 0.1; // demand-side shock standard deviation // load pruebaparams; set_param_value('a_sec2_secB2',a_sec2_secB2) set_param_value('a_sec2_secB3',a_sec2_secB3) set_param_value('a_sec3_secB2',a_sec3_secB2) set_param_value('a_sec3_secB3',a_sec3_secB3) set_param_value('alpha_sec2',alpha_sec2) set_param_value('alpha_sec3',alpha_sec3) set_param_value('b_sec2',b_sec2) set_param_value('b_sec3',b_sec3) set_param_value('beta_dec2_sec2',beta_dec2_sec2) set_param_value('beta_dec2_sec3',beta_dec2_sec3) set_param_value('beta_dec3_sec2',beta_dec3_sec2) set_param_value('beta_dec3_sec3',beta_dec3_sec3) set_param_value('betatilde_dec2',betatilde_dec2) set_param_value('betatilde_dec3',betatilde_dec3) set_param_value('c_sec2',c_sec2) set_param_value('c_sec3',c_sec3) set_param_value('delta_dec2',delta_dec2) set_param_value('delta_dec3',delta_dec3) set_param_value('gamma_dec2_sec2',gamma_dec2_sec2) set_param_value('gamma_dec2_sec3',gamma_dec2_sec3) set_param_value('gamma_dec3_sec2',gamma_dec3_sec2) set_param_value('gamma_dec3_sec3',gamma_dec3_sec3) set_param_value('mu_sec2',mu_sec2) set_param_value('mu_sec3',mu_sec3) set_param_value('phi_C',phi_C) set_param_value('phi_ME',phi_ME) set_param_value('va_sec2',va_sec2) set_param_value('va_sec3',va_sec3) psi_dec2=2; psi_dec3=2; sigma_sec2=1.2; sigma_sec3=1.2; N_dec2_sec2=55; N_dec2_sec3=55; N_dec3_sec2=25; N_dec3_sec3=53; G_sec2=55.1; G_sec3=55.1; Phat_sec2=1; Phat_sec3=1; Ehat_sec2=8.125; Ehat_sec3=75.925; Fhat=-54.05; eta_sec2=0.15; eta_sec3=0.025; M_sec2=0; tauM_sec2=0; tauM_sec3=0; s_sec2=0; s_sec3=0; //------------------------------------------- // E) MODEL EQUATIONS //------------------------------------------- model; #C_dec2_sec2 = exp(c_dec2_sec2); //estamos asignando variable auxiliar #C_dec2_sec3 = exp(c_dec2_sec3); //estamos asignando variable auxiliar #C_dec3_sec2 = exp(c_dec3_sec2); //estamos asignando variable auxiliar #C_dec3_sec3 = exp(c_dec3_sec3); //estamos asignando variable auxiliar // PRICE SYSTEM PM_sec2 = Phat_sec2*(1+ tauM_sec2)*ER; PM_sec3 = Phat_sec3*(1+ tauM_sec3)*ER; // PWE_sec2= (PD_sec2/((1+ s_sec2)*ER)); PWE_sec3= (PD_sec3/((1+ s_sec3)*ER)); // PD_sec2 = ((va_sec2*(1+tauIVA_sec2))/(c_sec2))*(((R_sec2/alpha_sec2)^alpha_sec2)*(( W_sec2/(1- alpha_sec2))^(1- alpha_sec2))) + ( a_sec2_secB2*P_sec2 + a_sec2_secB3*P_sec3); PD_sec3 = ((va_sec3*(1+tauIVA_sec3))/(c_sec3))*(((R_sec3/alpha_sec3)^alpha_sec3)*(( W_sec3/(1- alpha_sec3))^(1- alpha_sec3))) + ( a_sec3_secB2*P_sec2 + a_sec3_secB3*P_sec3); // //Psec2 equation has been modified because imports are zero for this sector P_sec2 = (1/b_sec2)*(PD_sec2 / ((1-mu_sec2)^(sigma_sec2/(sigma_sec2 - 1)))); P_sec3 = (1/b_sec3)*((PD_sec3 + PM_sec3*(((mu_sec3/(1-mu_sec3))*(PD_sec3/PM_sec3))^sigma_sec3))/(((1-mu_sec3)+mu_sec3*(((mu_sec3/(1- mu_sec3))*( PD_sec3/PM_sec3))^(sigma_sec3-1)))^(sigma_sec3/(sigma_sec3-1)))); // INTERMEDIATE DEMAND V_sec2 = a_sec2_secB2*XS_sec2 + a_sec3_secB2*XS_sec3; V_sec3 = a_sec2_secB3*XS_sec2 + a_sec3_secB3*XS_sec3; // FOREIGN SECTOR EQUATIONS E_sec2 = Ehat_sec2*(((Phat_sec2)/(PWE_sec2))^eta_sec2); E_sec3 = Ehat_sec3*(((Phat_sec3)/(PWE_sec3))^eta_sec3); // //M_sec2 is a parameter. Imports are always zero. M_sec3=(X_sec3/b_sec3)*((mu_sec3/ PM_sec3)^(sigma_sec3))*((mu_sec3^sigma_sec3)*(PM_sec3^(1- sigma_sec3))+ ((1- mu_sec3)^sigma_sec3)*(PD_sec3^(1- sigma_sec3)))^(sigma_sec3/(1- sigma_sec3)); // (Phat_sec2*M_sec2 + Phat_sec3*M_sec3) - (PWE_sec2*E_sec2 + PWE_sec3*E_sec3) = Fhat; // EQUILIBRIUM IN MARKET OF GOODS //Dsec2 equation has been modified because imports are zero for this sector D_sec2 = XS_sec2 - E_sec2; D_sec3=(X_sec3/b_sec3)*(((1-mu_sec3)/ PD_sec3)^(sigma_sec3))*((mu_sec3^sigma_sec3)*(PM_sec3^(1- sigma_sec3))+((1- mu_sec3)^sigma_sec3)*(PD_sec3^(1- sigma_sec3)))^(sigma_sec3/(1- sigma_sec3)); // //Xsec2 equation has been modified because imports are zero for this sector X_sec2 = b_sec2*((1-mu_sec2)^(sigma_sec2/(sigma_sec2-1)))*D_sec2; X_sec3 = b_sec3*(mu_sec3* (M_sec3^(( sigma_sec3-1)/ sigma_sec3)) + (1-mu_sec3)* (D_sec3^(( sigma_sec3-1)/ sigma_sec3)))^(sigma_sec3/(sigma_sec3-1)); // XD_sec2 = (D_sec2 + E_sec2); XD_sec3 = (D_sec3 + E_sec3); // CONSUMER EQUATIONS // Labor supply L_dec2_sec2 = N_dec2_sec2-(((1-gamma_dec2_sec2)/gamma_dec2_sec2)*(P_sec2*C_dec2_sec2/((1- tauL_dec2)*W_sec2))); L_dec2_sec3 = N_dec2_sec3-(((1-gamma_dec2_sec3)/gamma_dec2_sec3)*(P_sec3*C_dec2_sec3/((1- tauL_dec2)*W_sec3))); // L_dec3_sec2 = N_dec3_sec2-(((1-gamma_dec3_sec2)/gamma_dec3_sec2)*(P_sec2*C_dec3_sec2/((1- tauL_dec3)*W_sec2))); L_dec3_sec3 = N_dec3_sec3-(((1-gamma_dec3_sec3)/gamma_dec3_sec3)*(P_sec3*C_dec3_sec3/((1- tauL_dec3)*W_sec3))); // Decisions about intertemporal consumption-investment. rho_dec2_sec2(+1)*I_dec2_sec2=(betatilde_dec2)*I_dec2_sec2(-1)*((1-tauK_dec2(+1))*R_sec2(+1)+(1-delta_dec2)* rho_dec2_sec2(+1)); rho_dec2_sec3(+1)*I_dec2_sec3=(betatilde_dec2)*I_dec2_sec3(-1)*((1-tauK_dec2(+1))*R_sec3(+1)+(1-delta_dec2)* rho_dec2_sec3(+1)); // rho_dec3_sec2(+1)*I_dec3_sec2=(betatilde_dec3)*I_dec3_sec2(-1)*((1-tauK_dec3(+1))*R_sec2(+1)+(1-delta_dec3)* rho_dec3_sec2(+1)); rho_dec3_sec3(+1)*I_dec3_sec3=(betatilde_dec3)*I_dec3_sec3(-1)*((1-tauK_dec3(+1))*R_sec3(+1)+(1-delta_dec3)* rho_dec3_sec3(+1)); //Equilibrium condition for investment decision (rho_dec2_sec2 - rho_dec2_sec2*((psi_dec2)/2)*((((betatilde_dec2/rho_dec2_sec2)*(rho_dec2_sec2*(1- delta_dec2)+( 1- tauK_dec2)*R_sec2))-1)^2) - rho_dec2_sec2*((betatilde_dec2/rho_dec2_sec2)*(rho_dec2_sec2*(1- delta_dec2)+( 1- tauK_dec2)*R_sec2))*(psi_dec2)*(((betatilde_dec2/rho_dec2_sec2)*(rho_dec2_sec2*(1- delta_dec2)+( 1- tauK_dec2)*R_sec2))-1)) + (rho_dec2_sec2/(rho_dec2_sec2(+1)*(1-delta_dec2)+(1-tauK_dec2(+1))*R_sec2(+1)))*(rho_dec2_sec2(+1)*(((betatilde_dec2/rho_dec2_sec2(+1))*(rho_dec2_sec2(+1)*(1- delta_dec2)+( 1- tauK_dec2(+1))*R_sec2(+1)))^2)*(psi_dec2)*(((betatilde_dec2/rho_dec2_sec2(+1))*(rho_dec2_sec2(+1)*(1- delta_dec2)+( 1- tauK_dec2(+1))*R_sec2(+1)))-1))=PK; (rho_dec2_sec3 - rho_dec2_sec3*((psi_dec2)/2)*((((betatilde_dec2/rho_dec2_sec3)*(rho_dec2_sec3*(1- delta_dec2)+( 1- tauK_dec2)*R_sec3))-1)^2) - rho_dec2_sec3*((betatilde_dec2/rho_dec2_sec3)*(rho_dec2_sec3*(1- delta_dec2)+( 1- tauK_dec2)*R_sec3))*(psi_dec2)*(((betatilde_dec2/rho_dec2_sec3)*(rho_dec2_sec3*(1- delta_dec2)+( 1- tauK_dec2)*R_sec3))-1)) + (rho_dec2_sec3/(rho_dec2_sec3(+1)*(1-delta_dec2)+(1-tauK_dec2(+1))*R_sec3(+1)))*(rho_dec2_sec3(+1)*(((betatilde_dec2/rho_dec2_sec3(+1))*(rho_dec2_sec3(+1)*(1- delta_dec2)+( 1- tauK_dec2(+1))*R_sec3(+1)))^2)*(psi_dec2)*(((betatilde_dec2/rho_dec2_sec3(+1))*(rho_dec2_sec3(+1)*(1- delta_dec2)+( 1- tauK_dec2(+1))*R_sec3(+1)))-1))=PK; // (rho_dec3_sec2 - rho_dec3_sec2*((psi_dec3)/2)*((((betatilde_dec3/rho_dec3_sec2)*(rho_dec3_sec2*(1- delta_dec3)+( 1- tauK_dec3)*R_sec2))-1)^2) - rho_dec3_sec2*((betatilde_dec3/rho_dec3_sec2)*(rho_dec3_sec2*(1- delta_dec3)+( 1- tauK_dec3)*R_sec2))*(psi_dec3)*(((betatilde_dec3/rho_dec3_sec2)*(rho_dec3_sec2*(1- delta_dec3)+( 1- tauK_dec3)*R_sec2))-1)) + (rho_dec3_sec2/(rho_dec3_sec2(+1)*(1-delta_dec3)+(1-tauK_dec3(+1))*R_sec2(+1)))*(rho_dec3_sec2(+1)*(((betatilde_dec3/rho_dec3_sec2(+1))*(rho_dec3_sec2(+1)*(1- delta_dec3)+( 1- tauK_dec3(+1))*R_sec2(+1)))^2)*(psi_dec3)*(((betatilde_dec3/rho_dec3_sec2(+1))*(rho_dec3_sec2(+1)*(1- delta_dec3)+( 1- tauK_dec3(+1))*R_sec2(+1)))-1))=PK; (rho_dec3_sec3 - rho_dec3_sec3*((psi_dec3)/2)*((((betatilde_dec3/rho_dec3_sec3)*(rho_dec3_sec3*(1- delta_dec3)+( 1- tauK_dec3)*R_sec3))-1)^2) - rho_dec3_sec3*((betatilde_dec3/rho_dec3_sec3)*(rho_dec3_sec3*(1- delta_dec3)+( 1- tauK_dec3)*R_sec3))*(psi_dec3)*(((betatilde_dec3/rho_dec3_sec3)*(rho_dec3_sec3*(1- delta_dec3)+( 1- tauK_dec3)*R_sec3))-1)) + (rho_dec3_sec3/(rho_dec3_sec3(+1)*(1-delta_dec3)+(1-tauK_dec3(+1))*R_sec3(+1)))*(rho_dec3_sec3(+1)*(((betatilde_dec3/rho_dec3_sec3(+1))*(rho_dec3_sec3(+1)*(1- delta_dec3)+( 1- tauK_dec3(+1))*R_sec3(+1)))^2)*(psi_dec3)*(((betatilde_dec3/rho_dec3_sec3(+1))*(rho_dec3_sec3(+1)*(1- delta_dec3)+( 1- tauK_dec3(+1))*R_sec3(+1)))-1))=PK; // Intra-Temporal consumption demands. P_sec2*C_dec2_sec2=beta_dec2_sec2*((1- tauL_dec2)*( W_sec2* L_dec2_sec2 + W_sec3* L_dec2_sec3 ) + (1- tauK_dec2)*( R_sec2* K_dec2_sec2(-1)+ R_sec3* K_dec2_sec3(-1))- rho_dec2_sec2*I_dec2_sec2(-1) - rho_dec2_sec3*I_dec2_sec3(-1) +TR_dec1); P_sec3*C_dec2_sec3=beta_dec2_sec3*((1- tauL_dec2)*( W_sec2* L_dec2_sec2 + W_sec3* L_dec2_sec3 ) + (1- tauK_dec2)*( R_sec2* K_dec2_sec2(-1)+ R_sec3* K_dec2_sec3(-1))- rho_dec2_sec2*I_dec2_sec2(-1) - rho_dec2_sec3*I_dec2_sec3(-1) +TR_dec1); // P_sec2*C_dec3_sec2=beta_dec3_sec2*((1- tauL_dec3)*( W_sec2* L_dec3_sec2 + W_sec3* L_dec3_sec3 ) + (1- tauK_dec3)*( R_sec2* K_dec3_sec2(-1)+ R_sec3* K_dec3_sec3(-1))- rho_dec3_sec2*I_dec3_sec2(-1) - rho_dec3_sec3*I_dec3_sec3(-1)); P_sec3*C_dec3_sec3=beta_dec3_sec3*((1- tauL_dec3)*( W_sec2* L_dec3_sec2 + W_sec3* L_dec3_sec3 ) + (1- tauK_dec3)*( R_sec2* K_dec3_sec2(-1)+ R_sec3* K_dec3_sec3(-1))- rho_dec3_sec2*I_dec3_sec2(-1) - rho_dec3_sec3*I_dec3_sec3(-1)); // Capital accumulation equations. K_dec2_sec2=(1-delta_dec2)*K_dec2_sec2(-1)+ (1-(psi_dec2/2)*(((betatilde_dec2/rho_dec2_sec2)*(rho_dec2_sec2*(1- delta_dec2)+( 1- tauK_dec2)*R_sec2)-1)^2))*I_dec2_sec2(-1); K_dec2_sec3=(1-delta_dec2)*K_dec2_sec3(-1)+ (1-(psi_dec2/2)*(((betatilde_dec2/rho_dec2_sec3)*(rho_dec2_sec3*(1- delta_dec2)+( 1- tauK_dec2)*R_sec3)-1)^2))*I_dec2_sec3(-1); // K_dec3_sec2=(1-delta_dec3)*K_dec3_sec2(-1)+ (1-(psi_dec3/2)*(((betatilde_dec3/rho_dec3_sec2)*(rho_dec3_sec2*(1- delta_dec3)+( 1- tauK_dec3)*R_sec2)-1)^2))*I_dec3_sec2(-1); K_dec3_sec3=(1-delta_dec3)*K_dec3_sec3(-1)+ (1-(psi_dec3/2)*(((betatilde_dec3/rho_dec3_sec3)*(rho_dec3_sec3*(1- delta_dec3)+( 1- tauK_dec3)*R_sec3)-1)^2))*I_dec3_sec3(-1); // Price of capital PK = ((P_sec2/phi_C)^phi_C) * ((P_sec3/phi_ME)^phi_ME); // Aggregate labor LS_sec2 = (L_dec2_sec2+ L_dec3_sec2); LS_sec3 = (L_dec2_sec3+ L_dec3_sec3); // Aggregate capital KS_sec2 = (K_dec2_sec2+ K_dec3_sec2); KS_sec3 = (K_dec2_sec3+ K_dec3_sec3); // PRODUCTION EQUATIONS XS_sec2 = (VA_sec2/va_sec2); XS_sec3 = (VA_sec3/va_sec3); // VA_sec2 = c_sec2*(KS_sec2(-1)^alpha_sec2)*(LS_sec2^(1- alpha_sec2)); VA_sec3 = c_sec3*(KS_sec3(-1)^alpha_sec3)*(LS_sec3^(1- alpha_sec3)); // W_sec2 = (1- alpha_sec2)*c_sec2*(((KS_sec2(-1))/(LS_sec2))^(alpha_sec2)); W_sec3 = (1- alpha_sec3)*c_sec3*(((KS_sec3(-1))/(LS_sec3))^(alpha_sec3)); // R_sec2 = (alpha_sec2)*c_sec2*(((LS_sec2)/(KS_sec2(-1)))^(1-alpha_sec2)); R_sec3 = (alpha_sec3)*c_sec3*(((LS_sec3)/(KS_sec3(-1)))^(1-alpha_sec3)); // GOVERNMENT EQUATIONS ZG=tauL_dec2*(W_sec2* L_dec2_sec2+ W_sec3* L_dec2_sec3 ) + tauL_dec3* (W_sec2* L_dec3_sec2+ W_sec3* L_dec3_sec3 ) + tauK_dec2*( R_sec2* K_dec2_sec2(-1) + R_sec3* K_dec2_sec3(-1))+ tauK_dec3*( R_sec2* K_dec3_sec2(-1) + R_sec3* K_dec3_sec3(-1))+ tauIVA_sec2*(W_sec2* LS_sec2 + R_sec2* KS_sec2(-1))+ tauIVA_sec3*(W_sec3* LS_sec3 + R_sec3* KS_sec3(-1)); TR_dec1=ZG-(G_sec2 + G_sec3); //g = rhoG*g(-1)+epsG; tauK_dec2=0.3; //POLICY INSTRUMENT tauK_dec3=0.3; //POLICY INSTRUMENT tauL_dec2=0.25; //POLICY INSTRUMENT tauL_dec3=0.5; //POLICY INSTRUMENT tauIVA_sec2=0.1; //POLICY INSTRUMENT tauIVA_sec3=0.1; //POLICY INSTRUMENT end; //----------------------------------------------------------------------- // F) INITIAL GUESSES FOR THE STEADY-STATE COMPUTATION. INFO FROM SAM //----------------------------------------------------------------------- % initval; % % /////////////////////////////////////////// % tauK_dec2=0.3; //POLICY INSTRUMENT % tauK_dec3=0.3; //POLICY INSTRUMENT % tauL_dec2=0.25; //POLICY INSTRUMENT % tauL_dec3=0.5; //POLICY INSTRUMENT % tauIVA_sec2=0.1; //POLICY INSTRUMENT % tauIVA_sec3=0.1; //POLICY INSTRUMENT % /////////////////////////////////////////// % % epsG=0; % % end; % steady_state_model; tauK_dec2=0.3; //POLICY INSTRUMENT tauK_dec3=0.3; //POLICY INSTRUMENT tauL_dec2=0.25; //POLICY INSTRUMENT tauL_dec3=0.5; //POLICY INSTRUMENT tauIVA_sec2=0.1; //POLICY INSTRUMENT tauIVA_sec3=0.1; //POLICY INSTRUMENT L_dec2_sec2=50; L_dec2_sec3=50; L_dec3_sec2=20; L_dec3_sec3=48; c_dec2_sec2=log(40); c_dec2_sec3=log(5.775); c_dec3_sec2=log(45); c_dec3_sec3=log(5); LS_sec2=70; LS_sec3=98; K_dec2_sec2=20; K_dec2_sec3=20; K_dec3_sec2=60; K_dec3_sec3=20; KS_sec2=80; KS_sec3=40; XS_sec2=187; XS_sec3=176.8; VA_sec2=150; VA_sec3=138; E_sec2=8.125; E_sec3=75.925; M_sec3=30; ER=1; V_sec2=22; V_sec3=25; D_sec2=178.875; D_sec3=100.875; XD_sec2=187; XD_sec3=176.8; PD_sec2=1; PD_sec3=1; P_sec2=1; P_sec3=1; PM_sec2=1; PM_sec3=1; PWE_sec2=1; PWE_sec3=1; //ESTIMATION OF SOME ENDOGENOUS VARIABLES IN THE STEADY STATE W_sec2 = (1- alpha_sec2)*c_sec2*(((KS_sec2)/(LS_sec2))^(alpha_sec2)); W_sec3 = (1- alpha_sec3)*c_sec3*(((KS_sec3)/(LS_sec3))^(alpha_sec3)); R_sec2 = (alpha_sec2)*c_sec2*(((LS_sec2)/(KS_sec2))^(1-alpha_sec2)); R_sec3 = (alpha_sec3)*c_sec3*(((LS_sec3)/(KS_sec3))^(1-alpha_sec3)); I_dec2_sec2=delta_dec2*K_dec2_sec2; I_dec2_sec3=delta_dec2*K_dec2_sec3; I_dec3_sec2=delta_dec3*K_dec3_sec2; I_dec3_sec3=delta_dec3*K_dec3_sec3; PK=((P_sec3/phi_ME)^(phi_ME))*((P_sec2/phi_C)^(phi_C)); rho_dec2_sec2=PK; rho_dec2_sec3=PK; rho_dec3_sec2=PK; rho_dec3_sec3=PK; X_sec2 = b_sec2*((1-mu_sec2)^(sigma_sec2/(sigma_sec2-1)))*D_sec2; X_sec3 = b_sec3*(mu_sec3* (M_sec3^(( sigma_sec3-1)/ sigma_sec3)) + (1-mu_sec3)* (D_sec3^(( sigma_sec3-1)/ sigma_sec3)))^(sigma_sec3/(sigma_sec3-1)); ZG=tauL_dec2*(W_sec2* L_dec2_sec2+ W_sec3* L_dec2_sec3 ) + tauL_dec3* (W_sec2* L_dec3_sec2+ W_sec3* L_dec3_sec3 ) + tauK_dec2*( R_sec2* K_dec2_sec2 + R_sec3* K_dec2_sec3)+ tauK_dec3*( R_sec2* K_dec3_sec2 + R_sec3* K_dec3_sec3)+ tauIVA_sec2*(W_sec2* LS_sec2 + R_sec2* KS_sec2)+ tauIVA_sec3*(W_sec3* LS_sec3 + R_sec3* KS_sec3); TR_dec1=ZG-(G_sec2 + G_sec3); // end; steady;

and get

Residuals of the static equations:

Equation number 1 : 0
Equation number 2 : 0
Equation number 3 : 0
Equation number 4 : 0
Equation number 5 : 0
Equation number 6 : 0
Equation number 7 : 0
Equation number 8 : 0
Equation number 9 : 0
Equation number 10 : 0
Equation number 11 : 0
Equation number 12 : 0
Equation number 13 : 0
Equation number 14 : 0
Equation number 15 : 0
Equation number 16 : 0
Equation number 17 : 0
Equation number 18 : 0
Equation number 19 : 0
Equation number 20 : 0
Equation number 21 : 0
Equation number 22 : 0
Equation number 23 : 2
Equation number 24 : 2
Equation number 25 : 0
Equation number 26 : 0
Equation number 27 : 0
Equation number 28 : 0
Equation number 29 : 0
Equation number 30 : 0
Equation number 31 : 0
Equation number 32 : 0
Equation number 33 : -11.8842
Equation number 34 : -1.7158
Equation number 35 : 12.24
Equation number 36 : 1.36
Equation number 37 : 0
Equation number 38 : 0
Equation number 39 : 0
Equation number 40 : 0
Equation number 41 : 0
Equation number 42 : 0
Equation number 43 : 0
Equation number 44 : 0
Equation number 45 : 0
Equation number 46 : 0
Equation number 47 : 0
Equation number 48 : 0
Equation number 49 : 0
Equation number 50 : 0
Equation number 51 : 0
Equation number 52 : 0
Equation number 53 : 0
Equation number 54 : 0
Equation number 55 : 0
Equation number 56 : 0
Equation number 57 : 0
Equation number 58 : 0
Equation number 59 : 0
Equation number 60 : 0
Equation number 61 : 0

in both the unstable and Dynare 4.4.3

Posted: **Thu Jun 16, 2016 1:41 am**

I agree that setting the tolerance to a large number is not a good idea. Also, I'll be careful in not replacing the evaluate_steady_state-file.
When I used the last file you sent to me I realized that you have “tauL_dec3=0.5;”. However, the correct value of this instrument that solves the steady state of all endogenous variables in the steady_state_model block is “tauL_dec3=0.3;”. When doing this I obtain the steady state as entered in the steady_state_model block:

Code: Select all: STEADY-STATE RESULTS: L_dec2_sec2 48.8493 L_dec2_sec3 48.8466 L_dec3_sec2 19.9228 L_dec3_sec3 47.9206 LS_sec2 68.7721 LS_sec3 96.7672 KS_sec2 78.6976 KS_sec3 39.5301 K_dec2_sec2 20.17 K_dec2_sec3 19.4786 K_dec3_sec2 58.5275 K_dec3_sec3 20.0515 PK 1.83377 XS_sec2 183.845 XS_sec3 174.619 VA_sec2 147.47 VA_sec3 136.297 W_sec2 1.00068 W_sec3 1.00024 R_sec2 0.999402 R_sec3 0.999402 E_sec2 8.12093 E_sec3 75.9186 M_sec3 30.2717 ER 0.996601 V_sec2 21.6968 V_sec3 24.6236 D_sec2 175.725 D_sec3 101.38 X_sec2 175.725 X_sec3 131.651 XD_sec2 183.845 XD_sec3 177.298 PD_sec2 0.999932 PD_sec3 0.999948 P_sec2 0.999932 P_sec3 0.999179 PM_sec2 0.996601 PM_sec3 0.996601 PWE_sec2 1.00334 PWE_sec3 1.00336 ZG 122.193 c_dec2_sec2 3.89676 c_dec2_sec3 1.96218 c_dec3_sec2 3.48626 c_dec3_sec3 1.28979 I_dec2_sec2 15.7263 I_dec2_sec3 15.1872 I_dec3_sec2 21.3713 I_dec3_sec3 7.32179 rho_dec3_sec2 1.83377 rho_dec3_sec3 1.83377 rho_dec2_sec2 1.83377 rho_dec2_sec3 1.83377 TR_dec1 11.9935 Total computing time : 0h00m01s Note: warning(s) encountered in MATLAB/Octave code >> resid Residuals of the static equations: Equation number 1 : 0 Equation number 2 : 0 Equation number 3 : 0 Equation number 4 : 0 Equation number 5 : 0 Equation number 6 : 0 Equation number 7 : 0 Equation number 8 : 0 Equation number 9 : 0 Equation number 10 : 0 Equation number 11 : 0 Equation number 12 : 0 Equation number 13 : 0 Equation number 14 : 0 Equation number 15 : 0 Equation number 16 : 0 Equation number 17 : 0 Equation number 18 : 0 Equation number 19 : 0 Equation number 20 : 0 Equation number 21 : 0 Equation number 22 : 0 Equation number 23 : 0 Equation number 24 : 0 Equation number 25 : 0 Equation number 26 : 0 Equation number 27 : 0 Equation number 28 : 0 Equation number 29 : 0 Equation number 30 : 0 Equation number 31 : 0 Equation number 32 : 0 Equation number 33 : 0 Equation number 34 : 0 Equation number 35 : 0 Equation number 36 : 0 Equation number 37 : 0 Equation number 38 : 0 Equation number 39 : 0 Equation number 40 : 0 Equation number 41 : 0 Equation number 42 : 0 Equation number 43 : 0 Equation number 44 : 0 Equation number 45 : 0 Equation number 46 : 0 Equation number 47 : 0 Equation number 48 : 0 Equation number 49 : 0 Equation number 50 : 0 Equation number 51 : 0 Equation number 52 : 0 Equation number 53 : 0 Equation number 54 : 0 Equation number 55 : 0 ans = 1.0e-10 * 0 0 -0.0002 -0.0002 0.0000 0.0000 0 0.0000 0 0.0000 -0.0001 -0.0001 -0.0144 0.0007 0 0.0121 0 0.0034 -0.0003 0 0.0166 0.0157 0.0001 0.0001 0.0001 0 -0.0001 -0.0000 0.0000 -0.0000 0 -0.0000 0.1091 0.0157 -0.0005 -0.0000 -0.0000 -0.0000 0 0 0 0 -0.0001 0.0001 0.0001 0 0 0.0003 0.0003 0.0000 0.0000 -0.0000 -0.0000 0.0007 -0.0000

What I still don't understand is why the residual equations of the lagrange multipliers, when using the ramsey command, do not enter into the tolerance level... I mean, they are close to zero but not a level of 1e-5

Posted: **Fri Jun 17, 2016 5:04 pm**

Let’s do this by backward induction and start at the end. Upon solving the Ramsey problem around the steady state, all residuals for all equations need to be 0. If this is not the case, we would be approximating the problem around the wrong point. In the Ramsey problem the multipliers are variables, therefore we also need their steady states. Therefore, if there are non-zero residuals in these equations, as is the case in the last loop you refer to, this indicates something went wrong before. This is why we have this check and I am still convinced it is correctly implemented.
Now the question is what goes wrong in your mod-file before this so that the steady state and the solution of the Ramsey problem cannot be found. The answer, as I wrote in the forum, is that your steady state file is plain wrong. The purpose of the steady state is to compute the steady state conditional on ANY given value of the instruments. This is not the case. Your file only returns the correct steady state when tauL_dec3=0.3. As you wrote:

correct value of this instrument that solves the steady state of all endogenous variables in the steady_state_model block is “tauL_dec3=0.3;”.

This is not the right concept of a conditional steady state. You do not know whether 0.3 is the steady state for the instrument in the Ramsey problem (it turns out, it is not). Now what the Ramsey solver in Dynare does is try to find the steady state including the one of the instruments. But when a value different from 0.3 is given to the steady state file, it returns a wrong conditional steady state. That is why Dynare is not able to solve the Ramsey problem. At the beginning of the evaluate_steady_state.m we check whether the steady_state-file solves the static model part given the initval for the instrument. This check returns no error because your steady state file works for that one particular value of the instrument, but not any other. This is why I told you to enter a different initval for the instrument. In this case, Dynare immediately returns an error in the first check.
I hope this clarifies the issue. Please try to fix the steady state file and see whether this helps. An example is at https://github.com/DynareTeam/dynare/blob/master/tests/optimal_policy/Ramsey/ramsey_ex.mod
Best,
Johannes

Posted: **Sat Jun 18, 2016 1:42 am**

Thanks, Johannes
I'll check my model again.

Regards,
Eduardo

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