Hi there, I know the timing matters in Dynare. I have a question about what is the correct timing of UIP. The log-linearised form of UIP is E_tq_{t+1}-q_t=(R_t-\pi_{t+1})-(R^*_t-\pi^*_{t+1}) Which is the correct form should be put in Dynare q(+1)-q=(R-pi(+1))-(R*-pi*(+1)); (1) or q-q(-1)=(R(-1)…

Usually, it would be the first one. The UIP relates expected exchange rate changes and expected inflation differences. But it may be different in a complete markets context where relation (1) would hold in every single state of the world (as opposed to just on average).

Thanks Prof. Pfeifer. Could you give me more hints on why different forms of UIP can lead to different B&K conditions? I’ve looked through this post, and find if I change the UIP from the first form to the second form, the code posted is able to run, while with the first from, the B&K conditions are…

The post [image] Oscilating or alternating IRFs Stochastic simulations It means that there is a complex eigenvalue leading to oscillations. Usually, when people have this problem in the forum, it comes from them ignoring the Dynare timing convention and then torturing the …

Blanchard & Kahn conditions are not satisfied: indeterminacy/ no stable equilibrium

Stochastic simulations

jpfeifer 8 December 2023 15:46 4

The post

is relevant here. There is often another timing error that you “fix” be doing a second one.