Hello,

I am trying to perform a Bayesian estimation of a New Keynesian model augmented with sticky wages, habit in consumption, variable capital utilization and investment adjustments costs. The model includes eight shocks and I observe eight variables. However, the classic Blanchard Kahn condition problems arises, as follows:

There are 9 eigenvalue(s) larger than 1 in modulus

for 8 forward-looking variable(s)

The rank conditions ISN’T verified!

Error using print_info (line 40)

Blanchard Kahn conditions are not satisfied: no stable

equilibrium

I have tried desperately to identify the mistake, but so far without success. I have a feeling though that it may come from the three coefficients gammai, gammac and gammak (which are the steady state ratios of investment, consumption and capital, respectively, over output). I don’t understand why but if I set these coefficients to one, the model works. But obviously, it is not acceptable as these coefficients are found using the steady state of the model, and do not equal zero.

Can someone help me? Thanks in advance.

chicoutimy

NS5.mod (3.82 KB)