Hi, I make up a dsge model consisting of financial markets. the results said “Blanchard & Kahn conditions are not satisfied: indeterminacy.”
I check the model, it said “There are 20 eigenvalue(s) larger than 1 in modulus
for 23 forward-looking variable(s)”
I then checked carefully the timing issue and find no errors about that. could you please help me to solve this problem?
I upload the model file and also post here.
model.m (6.2 KB)
%%%%%%%%%%%%%% Lender Households %%%%%%%%%%%%%%
% (1) Euler Equation for consumption
exp(laml)=1/exp(Cl);
% (2) Euler equation for debt
exp(laml)=betal*exp(laml(+1))*exp(R)/exp(infl(+1));
% (3) Euler equation for housing
exp(laml)exp(qh)-gammah/exp(Hl)=betalexp(laml(+1))*exp(qh(+1));
% (4) labor supply
-Phiexp(etaLl)+exp(laml)*exp(w)=0;
%%%%%%%%%%%%%%% Borrowers %%%%%%%%%%%%%%%%%%
% (5) Budget
%exp(Cb)+exp(b(-1))/exp(infl)+exp(qh)(exp(Hb)-exp(Hb(-1)))=exp(w)exp(Lb)+exp(Qb)(exp(b)-kappaexp(b(-1))/exp(infl));
% (5) Borrowing budget
exp(Qb)(exp(b)-kappaexp(b(-1))/exp(infl))=xi*exp(qh)*exp(Hb);
% (6) Euler equation for consumption
1/exp(Cb)-exp(lam1)=0;
% (7) Euler equation for housing
gammah/exp(Hb)-exp(lam1)exp(qh)+betabexp(lam1(+1))exp(qh(+1))+xiexp(lam2)*exp(qh)=0;
% (8) lam1 and lam2
(exp(lam1)-exp(lam2))exp(Qb)+betab/exp(infl(+1))(kappaexp(lam2(+1))exp(Qb(+1))-exp(lam1(+1))(1+kappaexp(Qb(+1))))=0;
% (9) Labor supply
-Phiexp(etaLb)+exp(lam1)*exp(w)=0;
%%%%%%%%%%%%%%%%%%%%% Financial Market %%%%%%%%%%%%%%%%%%%%%
% (10) Rf
exp(Rf)=(1+kappa*exp(Qf))/exp(Qf(-1));
% (11) Rb
exp(Rb)=(1+kappa*exp(Qb))/exp(Qb(-1));
% (12) Budget
exp(Qb)*exp(b)+exp(Qf)*exp(f)=exp(d)+exp(n)+exp(s)*exp(hm);
% (13) n
exp(n)=sigma/exp(infl)*((exp(Rf)-exp(R(-1)))*exp(Qf(-1))*exp(f(-1))+(exp(Rb)-exp(R(-1)))*exp(Qb(-1))*exp(b(-1))+exp(R(-1))*exp(n(-1))-exp(Rhm(-1))*exp(s(-1))*exp(hm(-1)))+M;
% (14) Rhm
exp(Rhm)=exp(R)exp(-zeta/hmsexp(s)*exp(hm));
% (15) Lam
exp(Lam)=betal*exp(laml)/exp(laml(-1));
% (16) Omega
exp(Omega)=1-sigma+sigmathetaexp(phi);
% (17)
exp(Lam(+1))exp(Omega(+1))/exp(infl(+1))(exp(Rf(+1))-exp(R))=exp(lam)/(1+exp(lam))*theta;
% (18)
exp(Lam(+1))exp(Omega(+1))/exp(infl(+1))(exp(Rb(+1))-exp(R))=exp(lam)/(1+exp(lam))thetaDelta;
% (19)
exp(Qf)exp(f)+Deltaexp(Qb)*exp(b)=exp(phi)*exp(n);
% (20)
%theta*exp(phi)=exp(Lam(+1))exp(Omega(+1))/exp(infl(+1))(exp(R)*exp(n)-exp(Rhm(-1))*exp(s(-1))*exp(hm(-1)));
exp(phi)=(exp(R)*exp(Lam(+1))*exp(Omega(+1))/exp(infl(+1))) / (theta-(exp(Rf(+1))-exp(R))*exp(Lam(+1))*exp(Omega(+1))/exp(infl(+1)));
%%%%%%%%%%%%%%%%% Final Product Producer %%%%%%%%%%%%%%%
% (21) Production function
exp(Y)=exp(YhH*gamma)*exp((1-gamma)*YF);
% (22)
exp(YhH)/exp(YF)=gamma/(1-gamma);
% (23) Domestic tradable goods
exp(YH)=exp(YhH)+exp(EX);
% (24) Final goods price
1=(exp(pH)/gamma)^gamma*(exp(pF)/(1-gamma))^(1-gamma);
%%%%%%%%%%%%%%% Intermediate goods%%%%%%%%%%%%%%
% (25) Production function
exp(Ym)=exp(A)exp(alpha(K(-1)))*exp((1-alpha)*L);
% (26) Investment budget
exp(I)=exp(Qf)(exp(f)-kappaexp(f(-1))/exp(infl));
% (27) Capital evolvment
exp(K)=(1-delta)exp(K(-1))+exp(I)(1-kappaI/2*(exp(I)/exp(I(-1))-1)^2);
% (28) FOC for L
(1-alpha)*exp(pm)*exp(A)exp(alphaK(-1))exp(-alphaL)=exp(w);
% (29) FOC for K
exp(Lam(+1))(alphaexp(pm(+1))*exp(A(+1))*exp((alpha-1)*K)*exp((1-alpha)L(+1))+exp(theta2(+1))(1-delta))=exp(theta2);
% (30) FOC for I
-(1+exp(theta1))+exp(theta2)(1-kappaI/2(exp(I)/exp(I(-1))-1)^2-kappaI*(exp(I)/exp(I(-1))-1)(exp(I)/exp(I(-1))))+kappaIexp(Lam(+1))exp(theta2(+1))(exp(I(+1))/exp(I)-1)*(exp(I(+1))/exp(I))^2=0;
% (31) FOC for f
exp(Qf)(1+exp(theta1))-exp(Lam(+1))/exp(infl(+1))(1+kappaexp(Qf(+1))(1+exp(theta1)))=0;
%%%%%%%%%%%%%%%%%%%%%%%%% Retailer %%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%
% (32) x1
exp(x1)=(exp(pHr)/exp(pH))^(1-epsilon)exp(YH)+PhipinflH^(1-epsilon)exp(Lam(+1))(exp(pHr)/exp(pH(+1)))^(1-epsilon)*exp(x1(+1));
% (33) x2
exp(x2)=(exp(pHr)/exp(pH))^(-epsilon)*exp(pm)/exp(pH)exp(YH)+PhipinflH^(-epsilon)exp(Lam(+1))(exp(pHr)/exp(pH(+1)))^(-epsilon)*exp(x2(+1));
% (34) x1/x2
exp(x1)/exp(x2)=epsilon/(epsilon-1);
% (35) pHstar/pH
exp((1-epsilon)*pH)=(1-Phip)*exp((1-epsilon)pHr)+PhipinflH^(1-epsilon)*exp((1-epsilon)*pH(-1));
% (36) Ym/YH
exp(Ym)=exp(vp)*exp(YH);
% (37) vp
exp(vp)=(1-Phip)(exp(pHr)/exp(pH))^(-epsilon)+Phip(exp(pH(-1))*inflH/exp(pH))^(-epsilon)*exp(vp(-1));
%%%%%%%%%%%%%%%%%%%%%% Retailers for foreign tradable %%%%%%%%%%%%%%%%%
% (38) x1r
exp(x1r)=(exp(pFr)/exp(pF))^(1-epsilon)exp(YF)+PhipinflF^(1-epsilon)exp(Lam(+1))(exp(pFr)/exp(pF(+1)))^(1-epsilon)*exp(x1r(+1));
% (39)x2r
exp(x2r)=(exp(pFr)/exp(pF))^(-epsilon)*exp(pmF)/exp(pF)*exp(YF)+
Phip*inflF^(-epsilon)exp(Lam(+1))(exp(pFr)/exp(pF(+1)))^(-epsilon)*exp(x2r);
% (40) x1r/x2r
exp(x1r)/exp(x2r)=epsilon/(epsilon-1);
% (41) pFstar/pF
exp((1-epsilon)pF)=Phip(exp(pF(-1))*inflF)^(1-epsilon)+(1-Phip)*exp((1-epsilon)*pFr);
% (42) Ym/YF
exp(YmF)=exp(vpr)*exp(YF);
% (43) vpr
exp(vpr)=(1-Phip)(exp(pFr)/exp(pF))^(-epsilon)+Phip(exp(pF(-1))*inflF/exp(pF))^(-epsilon)*exp(vpr(-1));
%%%%%%%%%%%%%%%% Monetary Policy %%%%%%%%%%%%%%%%%
% (44) R
R=rhorR(-1)+(1-rhor)(log(Rs)+rhopi*(infl-log(Pis))+rhoY*(Y-log(Ys)))+eR;
%%%%%%%%%%%%%%%%%% Current account %%%%%%%%%%%%%%%%%%%
% (45) PmF
exp(pmF)=exp(s);
% (46) EX
exp(EX)=(exp(pH)/exp(s))^(-v)*exp(X);
% (47) X
X=(1-rhoX)log(Xs)+rhoXX(-1)+eX;
%%%%%%%%%%%%%%%%% Capital account%%%%%%%%%%%%%%%%%
% (48) hm
exp(hm)=hms*(exp(s)*exp(R)/(exp(s(+1))exp(Rr)))^v1(exp(Y(+1))/exp(Y))^v2;
% (49) Rr
Rr=(1-rhoRr)log(Rrs)+rhoRrRr(-1)+eRr;
%%%%%%%%%%%%%%%%%% Clearing conditions %%%%%%%%%%%%%%%%%%%%%%
% (50) Final goods clearing
exp(Y)=exp(Cl)+exp(Cb)+exp(I);
% (51) Housing clearing
exp(Hl)+exp(Hb)=1;
% (52) Labor market clearing
exp(Ll)+exp(Lb)=exp(L);
% (53) International budget
exp(EX)-exp(pmF)*exp(YmF)-exp(Rhm(-1))*exp(s)exp(hm(-1))=-exp(s)(exp(hm)-exp(hm(-1)));
% (54) Exchange rate policy
ln(exp(s)/ss)=rhos*ln( (exp(EX)-exp(pmF)exp(YmF)) / (EXs-pmFsYmFs))+es;
% (55) A
A=rhoA*A(-1)+eA;
end;
%options_.noprint=1;
steady;
shocks;
var eA=1;
var eR=1;
var eRr=1;
var eX=1;
var es=1;
end;
stoch_simul(order=1,irf=50,nograph,ar=0,qz_zero_threshold=1e-8) qh Y;