Blanchard-Kahn/ No stable equilibrium

General DSGE Modeling Replication Attempts
1

Hi everyone,

I am currently working on a replication of the Baxter & Crucini 1995 paper on Business Cycles and the Asset Structure of Foreign Trade. When coding up the complete market EQ, however, Dynare tells me that the rank condition isn’t satisfied and there’s no stable EQ. I’ve tried finding the unit root but cannot spot the mistake - can someone please have a look at it and help me out?

Thank you very much for your help!BC1995_Dynareforum.mod|attachment (6.4 KB)BC1995_Dynareforum.mod (6.4 KB)

2

Hello,

from what I can see everything looks fine in your model. Normally, a timing issue could lead to such a problem, but I cannot spot any here. Thus, my guess would be that it is related to your parametrization, as when I change SIGMA to a value <= 1 it works out. But since you used the one from the original paper, maybe the error is in some other parameter.