Dear all,
I am currently working with a DSGE model which includes land, like the one by Iacoviello and Neri. In these models land becomes part of the optimisation problem of entrepreneurs/firms. I have derived the first order conditions and steady states, in which I normalise the value of land to 1.
Before I start entering the model into dynare, I wanted to ask how I have to deal with this normalisation of land. Do I have do declare land as a model variable and set it later equal to 1 in the model block? Or what would be the correct procedure?
I would be grateful for any help I could get regarding this issue.
Robert
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Land normalised to 1
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Land normalised to 1
by Robert » Thu Apr 27, 2017 3:20 pm
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Re: Land normalised to 1
by jpfeifer » Fri Apr 28, 2017 10:16 am
The most foolproof way is to directly impose that land is normalized to 1. That is: derive the FOCs with land as a variable and then impose that L=1. That way, land will drop from all FOCs and will not be a variable anymore.
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Re: Land normalised to 1
by Robert » Fri Apr 28, 2017 1:11 pm
Thanks Johannes, I will follow your foolproof approach.
Robert
Robert
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