A problem with satisfying the Blanchard-Kahn condition

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
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,
benchmark2.mod (6.02 KB)

Typically, the problem derives from timing issues, either related to the capital stock or to returns in the Euler equation. Given the size and specificity of the model, you cannot expect much help from other users. You need to check your equations. If nothing else helps, strip down your model to the easiest/smallest version that works and then rebuild it step by step.

Dear Johannes,

Thanks for your previous response.
I try to simplify my model, but receive the following error.

Error using print_info (line 54)
One of the eigenvalues is close to 0/0 (the absolute value
of numerator and denominator is smaller than 1e-06!
If you believe that the model has a unique solution you
can try to reduce the value of qz_zero_threshold.
Error in check (line 76)
print_info(info, options.noprint, options);
Error in benchmark5 (line 499)
oo_.dr.eigval = check(M_,options_,oo_);
Error in dynare (line 162)
evalin(‘base’,fname) ;

What is the likely cause of the problem?
Can it be due to the fact that there exist equations that are linearly dependent?


Try running model_diagnostics.