Hi everyone,

I have a problem with satisfying the Blanchard-Kahn conditions.

My model is an extension of RBC model, including two heterogeneous firms; two financial intermediaries which each has a relationship with only one firm; and the possibility that the firms can choose to default a portion of the loans.

I ran the code, but it appears that

"There are 11 eigenvalue(s) larger than 1 in modulus

for 10 forward-looking variable(s)

The rank condition ISN’T verified!

Error using print_info (line 42)

Blanchard Kahn conditions are not satisfied: no stable

equilibrium

Error in stoch_simul (line 85)

print_info(info, options_.noprint, options_);

Error in benchmark2 (line 555)

info = stoch_simul(var_list_);

Error in dynare (line 162)

evalin(‘base’,fname) ;"

I have tried my best to specify the timing of the variables correctly. So, I guess that the problem should be from the parameters or something else??

Therefore, may I ask for the advice on how to solve this problem?

Do the computed eigenvalues give any clue on which variables/parameters/equations are likely to cause the instability?

Thank you in advance for any responses.

I have also attached below my code.

With kind regards,

Tawun

benchmark2.mod (6.02 KB)