Blanchard Kahn conditions are not satisfied: indeterminacy?


#1

i have work on this code for few weeks. when only one shock is involved in the code named example1.mod, it is working, but when i add another shock into the code, it doesn’t work(the code named example1risk.mod). the model_diagnostics tell me it’s no problem. what’s the problem in it?
example1.mod (1.6 KB)
example1risk.mod (1.7 KB)


#2

I am not sure I understand what you are doing. But equations

dbl(+1)=1.038*dbl+u;
risk(+1)=0.811*risk+v;

are problematic. Dynare’s timing convention for exogenous processes is
z_t=\rho z_{t-1}+\varepsilon
You shifted everything one period to the future. That explains the problem. However, the first process is an unstable one as the autoregressive parameter is bigger than 1. That explains why it worked the way you entered it. But it still does not make much sense.