Hi, everyone.

I introduce CES production function to DSGE model, the firm setting follow BMP(2020),when I set the coefficient of adjustment cost of investment `phi_K`

to 0, the model works.

When I set the coefficient `phi_K`

to 10, Dynare reports:` Blanchard & Kahn conditions are not satisfied: no stable equilibrium.`

I think the erro maybe come from the first order condition about capital.

So I would like to know: For my dynare erro, where shold I look for the reasons?

Which paper/version exactly are you looking at? Most likely there is a sign error in your implementation that goes away if the adjustment costs drop from the model.

Sorry for the delay. Did you solve the issue?

Thanks for your reply, Prof Pfeifer.

The paper is “Uncertainty shocks in currency unions (Born ,Müllerand Pfeifer, Decemeber 2020)”, And I derive (3.13) of the paper:

I get the first order function of `I_t`

and `K_t`

as following function:

I think the function is right, but Dynare reports BK are not satisfied.

Usually, it’s

```
[name='LOM Capital']
K(+1)=(1-(delta_0 + delta_1*(u-1)+delta_2/2*(u-1)^2))*K+I*(1-phi_k/2*(I/I(-1)-1)^2);
[name='Capital Services FOC']
R_K*(u*K)=alppha*Xi*PF_normalization*(u*K)^alppha*(Z*N)^(1-alppha);
[name='Capital FOC']
q = M*(R_K(+1)*u(+1)+q(+1)*(1-(delta_0 + delta_1*(u(+1)-1)+delta_2/2*(u(+1)-1)^2)));
[name='FOC investment']
1 = q*(1-phi_k/2*(I/I(-1)-1)^2-phi_k*(I/I(-1)-1)*I/I(-1))
+M*q(+1)*phi_k*(I(+1)/I-1)*(I(+1)/I)^2;
```

where

```
#M=betta_df*V_C(+1)/V_C;
[name='Definition marginal utility']
V_C=eta*a*V_normalization*(C^eta*(1-N)^(1-eta))^(1-siggma)/C;
```