I am trying to simulate a two-country model with a friction in currency exchange. I introduced a currency broaker in Gabaix and Maggiori (QJE2015) into a simple two-country dynamic model, to see how government intervention shock (g in the code) affects the real exchange rate (et in the code). I closely follow their paper and its appendix to set up the model, but somehow the BK condition is not satisfied. In the paper they say the model is stationary. I checked the timing of the variables but couldn’t find any problem.
I attach my code. I would greatly appreciate if you give me some help or at least some hints.
Thank you very much.
Gamma_simple.mod (3.01 KB)