# Blanchard & Kahn conditions are not satisfied: indeterminacy (Govt Spending, Debt and Taxes)

Can some one please assist me with this issue. I have checked for a bit but I am not sure if I can spot the error.

``````1/C = beta*( (1/C(+1))*(R(+1) + (1 - delta)) )
1/C = beta * (1/C(+1)) * (r + 1);
theta * N^chi = (1/C) * w * (1-tau);
Y = A * K(-1)^alpha * N^(1-alpha);
R = alpha * A * (K(-1)^(alpha-1)) * N^(1-alpha);
w = (1-alpha) * A * K(-1)^(alpha) * N^(-alpha);
log(A) = rho_a * log(A(-1)) + eps_a;
log(G) = (1 - rho_g) * log(G_mean) + rho_g * log(G(-1)) + eps_g;
log (tau) = (1 - rho_t) * log (tau_mean) + rho_t * log(tau(-1)) + (1-rho_t) * gamma_t * ((D/Y) - D_by_Y);
G + r(-1)*D(-1) = tau*w*N + D - D(-1);
Y = C + I + G;
I = K - (1-delta)*K(-1);
``````

Error i have:
Blanchard & Kahn conditions are not satisfied:
indeterminacy.

There is an asterisk missing in the first equation, but you have it listed twice…what is happening there?

In any case, the first equation has the gross interested rate advanced while in the second equation it is not advanced. What does your model say it should be?

Seems your government equation is also missing an asterisk.

D seems to be “debt”? Can I ask what function this variable serves? You have taxes; why not just assume a balanced budget. It seems that physical capital “K” is pinning down “R” in the first Euler, but then are you attempting to pin down “r” in the second Euler using the shock to government expenditure?

You need to give us a little more to go with here…

Without the full mod-file, it is impossible to tell what is going on.

I am attaching the mod file here. I have changed a few details. However the it
doesn’t work still for me

Hi,

If you look at the steady-state results you see that D is negative which means that there must be a mistake somewhere .

Moreover you set G=2 as initval value which makes no sense since you also set Y=1.5 as initval.