Blanchard Kahn not satisfied (simulation code does not work)

Stochastic simulations
1

Hi everyone,
I am new to Dynare, and I am working on a project which I have attached. It won’t go through, the problem is:

There are 3 eigenvalue(s) larger than 1 in modulus
for 2 forward-looking variable(s)

The rank condition ISN’T verified!

Error using print_info (line 32)
Blanchard & Kahn conditions are not satisfied: no stable equilibrium.

I have checked the answers to some of the similar topics, most say the problem might occur in the time convention for state variables. However, I have checked the time conventions it seems correct to me.

Could you please have a look at the code and give me some hint?
fun_simulation_pfric2.mod (5.2 KB)

Many thanks!

2

I am pretty sure that

-sigmac*Ct = -sigmac*Ct(+1) + (Rt-Pit);

ins not a typical Euler equation in its timing.

3

Hi Johannes,

Thanks very much for your reply.
This equation is the log linearized first-order condition regarding bonds in household problems. I have attached the household part of the model, and the highlighted equation is the one you mentioned. In the original equation, the bonds rate and inflation should have time R_t+1 and Pi_t+1. However, the Dynare guild says the timing of each variable reflects when that variable is decided; that is why I set both of them to the time t rather than t+1. Did I misunderstand the guide?
household problem.pdf (42.7 KB)

4

I don’t think you understood the timing convention properly. Inflation in period t+1 is definitely not decided at time t. For the bond rate, you need to decide on your specification. Often it is indeed known at time t. But that only affects the timing in the budget constraint.

5

Hi Johannes,

Thanks very much for your explaination. I changed the timing in some of my equations and it works!

Thanks again for the help