I built a business cycle model with adjustment of invest cost, variable capacity rate, and asset pricing. However, when I simulated the model in DYNARE, it told me “There are 5 eigenvalue(s) larger than 1 in modulus for 7 forward-looking variable(s)”. The model is a standard one. For standard, I mean I borrow almost everything from literature. I can not figure out why this situation happens. So, if somebody help me through, I will be really appreciated.

news.mod (1.46 KB)

model.pdf (179 KB)

Check the timing. For the exogenous process, it is wrong. I think it should be

`a=rho*a(-1)+e;`

instead of

`a(+1)=rho*a+e;`

It improves the number of eigenvalues. DYNARE reports “There are 6 eigenvalue(s)(instead of 5 in the previous report) larger than 1 in modulus

for 7 forward-looking variable(s)”. I am thinking whether I can change the timing of one of the Lagrange multipliers. Since q, the Lagrange multiplier of capital accumulation function is the co-state of K(t+1). Is it feasible in DYNARE by doing in this way?

There is a unique timing convention. The question is not whether you can change the timing, but rather which timing is the unique correct one. In Dynare, as capital is predetermined, K(+1) is entered as K as it is decided at time t. The costate is determined at the same time and thus has the same timing.