Error in Estimation Under Indeterminacy (BK conditions)

Estimation
1

Hello!

I am estimating the Smets and Wouters (2007) model under indeterminacy using the method from Bianchi and Nicolo (2021). When running the model under indeterminacy, with the alpha parameter set to 0.5, I am getting an error that the B-K conditions are not satisfied. This is strange as I had thought it would proceed to estimation and find the corresponding parameter coefficients that would satisfy the BK conditions.

I haven’t encountered this error before when using alternate models like a simple NK. Any help would be greatly appreciated! Code and dataset is attached.

DATA_POST_GM.mat (4.2 KB)
dyn3.mod (5.4 KB)

2

Please make sure that your calibrated version of the model works and then make sure you start the estimation at that parameterization. The calibrated version works as expected, but the estimated one does not. This should be a matter of parameter settings.

3

Sorry for the late response Dr. Pfeifer. This was very helpful! The code is now working under indeterminacy. I adjusted the inflation response parameter in the Taylor rule to start at 0.5 and it worked immediately. Thanks a lot for your help!