Changing/recalibrating parameter values lets BK conditions fail

Dear all,

my model runs smoothly and makes sense for my initial calibration (taken from the initial model that I develop further). When I recalibrate my model to the country that I want to analyse (I use data to find sensible values for 2 “big ratios” to determine 2 parameters and recalculate the steady state using the steady_state_model block), the steady state is solved and the values make sense (are close to the values before). However the BK conditions fail. I noticed earlier that the solution of the model seems to be sensitive to some parameters.

What would be a good way to approach this problem apart from trial and error (i.e. fixing other parameters/variables in the steady state and solving the steady state again etc.)?

Thanks a lot.

Similar topics in the forum (that were never answered…):


You should conduct a sensitivity check to see which parameter drives the Blanchard/Kahn failure. You e.g. use the dynare_sensitivity-command for that. In cases like the one you describe, it makes sense to understand how the model works, i.e. which conditions need to be satisfied in order to obtain a unique stable solution.

Thank you for your answer. It is not clear to me from the manual how to use the command correctly in my case. From the manual it seems that it is only for cases of estimation…? Also, when I put the command between the shocks-block and stoch_simul, it tells me:

Error using dynare_estimation_init (line 73)
VAROBS statement is missing!

Does anyone have any recommendations? Thanks a lot!

It very much depends on what you are trying to do. Without a specific file it is hard to tell.