Linear and Nonlinear equations mixed.New Keynesian Model.

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Re: Linear and Nonlinear equations mixed.New Keynesian Model

Postby hfukate » Mon Oct 10, 2016 11:27 am

Hi,

I am trying to solve Fernandez-Villaverdes' model without the capital, investment and wage rigidity. It's a simple model with price rigidity only.

I am aware that we need to re-scale some variables in order to preserve stationary time series. However, I still encounter certain problems when Dynare is trying to deal with the technology variable (A), which is the only exogenous shock that grows exponentially.

An infinite element was encountered when trying to solve equation(s) 6 with respect to the variable(s): A.

Could anyone give me some thoughts or hints on where I get it wrong? Thanks in advance.

Hsuan
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Re: Linear and Nonlinear equations mixed.New Keynesian Model

Postby jpfeifer » Thu Oct 13, 2016 2:00 pm

A problem is
Code: Select all
A(+1) = A*exp(mu_a + e_a);

In steady state, it implies
Code: Select all
1=exp(mu_a)

which is only feasible if mu_a=0.
------------
Johannes Pfeifer
University of Cologne
https://sites.google.com/site/pfeiferecon/
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