Blanchard Kahn conditions are not satisfied: indeterminacy

I have worked on the attached mod file for a few weeks, but it seems that I can not find where the problem come from? Anyone can help? I don’t know if the problem is due to the model itself or coding. This is a monetary union model where the household rent capital to both countries. Thanks in advance for any comments.

There are 8 eigenvalue(s) larger than 1 in modulus
for 9 forward-looking variable(s)

The rank conditions ISN’T verified!

??? Error using ==> print_info
Blanchard Kahn conditions are not satisfied: indeterminacy

Error in ==> stoch_simul at 46
print_info(info, options_.noprint);

Error in ==> cu2010 at 320
info = stoch_simul(var_list_);

Error in ==> dynare at 132
evalin(‘base’,fname) ;
cu2010.mod (2.49 KB)

Hi. I do have exactly the same problem with my code. It would be great if you can share the solution with me (in case you get it ofcourse).


This issue has been dealt in many posts on this forum.

The technical point is that, when there are not as many forward variables as there are eigenvalues with modulus greater than 1, there is no unique stable rational expectation equilibrium to the model. See the paper from Blanchard and Kahn (1980) to see the demonstration in a linear setup.

Your model is therefore misspecified: you need either to change some equations, or change some parameter calibrations, to get the conditions satisfied.