I was trying to replicate the paper by John Barrdear and Michael Kumhof, The macroeconomics of central bank issued digital currencies. It evaluates the impact of CBDC on the economy. I believe it is a permanent deterministic shock. My problem is: since CBDC does not exist in the pre-CBDC economy, the quantity of CBDC and its interest rate should not exist. Then what should I do for the initial block? From the equations, if the quantity of CBDC is 0, then its interest rate would go to infinity because the quantity is at the denominator. So the steady state could not be solved.
From Barrdear and Kumhof’s paper, their IRF on real CBDC interest rate does not exist in the pre-CBDC economy. I was wondering does anyone know how they achieved this? Is this achieved by Dynare?
Thanks in advance!