The steady state file did not compute steady state

[Enthusiast]

Dear all,

when I try to run my code I get this error message "The steadystate file did not compute the steady state". So my steadystate file doesn't seem to work. The code is largerly based on the model from Iacoviello 2005 and I tried hard to account for all issues. Could you please have a look on my code?

Any help would be appreciated!

The code is attached.

P.S. And the strange thing is that when I use model_steady_state block instead of the m-file, only four residuals remain non zero and others are zero. Could anybody please point out to me what I did wrong?

[jpfeifer]

First of all, this is not the way you are supposed to write a steady state file! It is completely outdated. Where did you get it from? See http://www.dynare.org/phpBB3/viewtopic.php?f=1&t=6419 on how to do a modern version.

Second, if you can use a steady_state_model-block, do so. Only use a separate steady_state-file if absolutely necessary.

Third, given the displayed residuals, your steady state does not fit the model entered into Dynare. There must be a mistake somewhere, either in the equations with residuals or the computation of the steady states of the variables involved in these equations.

[Enthusiast]

Dear Johannes, thanks a lot for your reply!

Now I managed to correct the code so as all residuals are zero and steady state can be computed. However, I have another problem. in this version of the code I don't include retail sector and prices are assumed to be flexible. If I try to run the code, then Blanchard Kahn conditions are not satisfied - There are 5 eigenvalue(s) larger than 1 in modulus for 6 forward-looking variable(s).
However, if I just mechanically change the timing of inlfaiton one period back (to period t where it is supposed to be t+1), the code works.

I'm a bit puzzled now - could you see any obvious problem in my code? Could the reason be that the retail sector is missing? Impulse responses are also somehow weird - following a contractionary monetary policy shock both output and Inflation for some reason increase on Impact. I have the feeling that there is some fundamental issue in my code, but I cannot see now what it could be.

I would appreciate if you could have a look on my modified code!

[jpfeifer]

This sounds like a timing problem. You cannot set inflation as predetermined. This makes no sense as you are saying that inflation cannot react within this period to e.g. monetary policy.

You says you consider flexible prices. If that is true, why should output move after a monetary policy shock in your model? Note also that Dynare says something about the rank condition not being satisfied. It could be that when you use flexible prices that some variables cannot be determined, i.e. the flex-price version is not easily nested in your model because some equations and variables would completely drop out, leading to singularity.