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
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)
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,
benchmark2.mod (6.02 KB)