Basic Costa J. model: Blanchard & Kahn conditions error

Dear all,

I am fairly new to DSGE modelling and I am trying to write a .mod file of a very basic model described in C.J. Costa, to get a grasp of DSGE. There are calibrated parameters and log-linearized equations in tables 2 and 3 on page 436, from which I would like to build the model.

This is the model I have so far
model.mod (997 Bytes), which returns following errors, when I try to simulate:

Error using print_info
Blanchard & Kahn conditions are not satisfied: indeterminacy.

Error in stoch_simul (line 120)
print_info(info, options_.noprint, options_);

Error in model.driver (line 232)
[info, oo_, options_, M_] = stoch_simul(M_, options_, oo_, var_list_);

Error in dynare (line 278)
evalin(‘base’,[fname ‘.driver’]);

As far as I know, Blanchard & Kahn conditions error usually suggest some kind of time discrepancy, e.g. missing lag or lead in some variable, but I couldn’t find the problem and I assume the equations should be correct, as they are from a well-known article.

I would very much appreciate any help!

Thank you in advance.

You are missing

predetermined_variables K;

model_costa.mod (1.0 KB)

1 Like

Thank you, professor! It works, I’ll look into that more.