A parameter leads to "Blanchard & Kahn conditions are not satisfied: indeterminacy."

Dear all,

I have constructed a small open-economy DSGE model in which all variables related to foreign countries are exogenous. I solve the model using linearised equations. There is a parameter omega_m representing the import share of good M in the model. The import variable is exogenous. When this parameter is set to 0.1, there are no issues with solving and simulation. However, when I set the parameter to 0.2, an error occurs: ‘There are 8 eigenvalue(s) larger than 1 in modulus for 9 forward-looking variable(s). The rank condition ISN’T verified! Blanchard & Kahn conditions are not satisfied: indeterminacy.’ Can you help me identify the problem?

Thank you very much.

code.mod (6.7 KB)
solve_w_ss.m (1.6 KB)

In many cases Blanchard-Kahn failure in Dynare results is due to the timming issue of an endogenous variable in the model.

Please check your predetermined variables in the model again.

Thank you very much for your response. I have a bit of confusion. Can the fact that my model code runs smoothly when ‘omega_m=0.1’ imply that there is no timing issue of an endogenous variable in the model?

No, I do not mean this issue. I indicated about the timming issue for predetermined variables.
You indicated about parameter value in the model.

Ok, thank you very much.

Changes in parameter values can alter the determinacy properties of the model. The big question is whether a small value for the the parameter hides a true issue with the model or whether the model is correct but just features a small determinacy region.

Thank you very much. I’ll check my model and code.