# Blanchard Kahn conditions are not satisfied: no stable equil

Dear all,

I am trying to run the RBC model which consists of households,intermediate goods firms and finals goods firms. The thing that I want to see is how the economy reacts to the shock in foreign price good which is used in production of the final good. I have been trying to model it for 3 weeks but for some reason it doesn’t work. Could you please tell me what am I doing wrong or suggest some method? I have attached the mod file

Thank you![code]// 1.Preamble

var c lab wage k r d lm rp y dt pm ystar inv z;

varexo epsz;

parameters alpha pstar psi beta dbar rstar sigmaz rhoz lambda mu delta theta ;

// 2.Calibration

theta =0.36;
psi = 0.001;
beta = 0.87;
dbar = 0.007;
rstar = (1/beta)-1;
lambda = 0.61;
mu=0.69;
alpha= 0.32;
delta = 0.1255;
rhoz = 0.765;
sigmaz = 0.027;
pstar =1 ;

ky = alpha/(1/beta - 1 + delta);
cy = 1- ky*delta;

// 3.Model

model;

//HOUSEHOLDS:

lm = (theta/c); // 1 FOC wrt Ct Marginal Utility of Consumption

1-theta/1-lab= lm*wage; // 2 FOC wrt Lt Labor Supply

lm = lm(+1)beta(dt(+1)-delta+1); // 3 FOC wrt Kt Euler Equation for Capital

lm = lm(+1)beta(1+r(+1)); // 4 FOC wrt Dt Euler Equation for Bonds

rp = psi*(exp(d(-1)-dbar)-1); // 5 Given in Grohe model

r = rstar + rp; // 6 Given in Garcia Cicco Model

// INTERMEDIATE GOODS FIRM:

alpha*y/k(-1)= dt; // 7 FOC wrt Kt Demand for capital

(1-alpha)*y/lab = wage; // 8 FOC wrt Lt Labor Demand

// FINAL GOODS PRODUCING:

(lambda*y^(mu)+(1-lambda)*ystar^(mu))^((1/mu)-1)lambda(y^mu-1)= pm; // 9 Demand for domestic input

(lambday^(mu)+(1-lambda)ystar^(mu))^((1/mu)-1)(1-lambda)(ystar^mu-1)= exp(z)*pstar; // 10 Demand for foreign input

//MARKET CLEARING

c+inv+d = wagelab+dtk(-1)+d(-1)*(1+r); // 11 Household budget Constraint

k = (1-delta)*k(-1)+inv; // 12 Law motion of Capital

y = (k(-1)^alpha)*(lab^1-alpha); // 13 Intermediate Goods Sector

// FOREIGN PRICE SHOCK

z = rhoz*z(-1) + epsz; // 14

end;

// 4.Computation of the steady state

initval; // pm pstar mstar z;

lab = 1/(1+ cytheta);
y = ky^(alpha/(1-alpha))lab;
k=ky
y;
c=cy
y;
inv = delta*k;
wage = (1-alpha)*y/lab;
lm = theta/c;
dt = (1/beta-1+delta);
r = rstar;
d = dbar;
rp =0;
pm=pstar;
z = 0;
ystar = ((y^mu-1)*lambda/1-lambda)^1/mu-1;

end;

// 4.Shocks

shocks ;
var epsz = sigmaz^2;
end;

%check;
resid(1);
``` y = (k(-1)^alpha)*(lab^1-alpha); // 13 Intermediate Goods Sector ```