Blanchard Kahn conditions are not satisfied: indeterminacy - monetary policy

Stochastic simulations
1

Hi

I tried to code a model solving for a monetary policy shock on dynare, I thought I had the correct timing on my variables according to conventions, but there is an error : Blanchard Kahn conditions are not satisfied: indeterminacy.

Could anyone tell me what that means or what is wrong with my code ?

Thanks

TRYA2.mod (1.3 KB)

2

It’s hard to tell. I cannot spot anything immediately wrong, but I don’t know your model. Are you sure all timings and signs are correct?

3

I think the timing of my state variables are correct, that is why I don’t understand the Blanchard and Kahn condition error. It might be that I didn’t put the right equations but I don’t know how I could do things differently. Do you think you could help me with that ?

I attached the model below.

Thank you so much for your help,

Best

Doc3.pdf (253.3 KB)

4

You are not the only person asking for hints on that particular problem set. There are two other people as well, but your solutions look quite different. Without seeing the exact question/setup, it is impossible to tell what is going on. My hunch is that the confusion/problem comes from what is actually predetermined in the model. Clearly, capital is predetermined, but so is usually the aggregate money stock. At the same time, its unclear to me whether the division of the aggregate money stock into cash and deposits is predetermined as well or can be decided within the period. Put differently, what is the relation between M_t,m_{c,t},m_{d,t}?
Is it
M_t=m_{c,t}+m_{d,t}
or
M_{t-1}=m_{c,t}+m_{d,t}

Relatedly, see Timing of capital in two sector model

5

Also note that your setup resembles Schorfheide (2000). The mod-file to it is in Dynare’s example folder. There is even a non-stationary version at https://git.dynare.org/Dynare/dynare/-/blob/master/tests/fs2000/fs2000c.mod