Hey Dynare Community,

I´m currently working on the paper “The Financial Accelerator in a Quantitative Business-Cycle Framework” and I tried to replicate the results using Dynare.

Regarding the implementation of the model block I have the following questions.

1.Since all my efforts failed to fulfil the Blanchard-Kahn conditions when implementing the model block, I looked at different Dynare Code examples for the BGG model in the WWW.

In this Dynare Code examples the variables r, n and k are dated one period further into the past compared to the equations in the original paper.

Example: E_t{rk_t+1} – r_t+1 = -v[n_t+1 - (q_t + k_t+1)] // Equation 4.17 in the paper

rk(+1) - r = -nu*(n -(q + k)); //Implementation of 4.17 in Dynare Code examples

Now my questions:

Is this implementation indeed right? / Don’t we harm the time structure of the BGG model?

Why is it not possible to lag equation 4.17 and implement it using an auxiliary variable for the expectation operator?

Example: E_t-1{rk_t} – r_t = -v[n_t – (q_t-1 + k_t)]

erk(-1) – r = -nu*(n – (q(-1) + k)); // My implementation of 4.17

erk = rk(+1); // auxiliary variable for 4.17

I tried to implement the BGG model this way without changing the time structure, but the model always fails to meet the BK-conditions.

- Looking at the Phillips curve equation (4.22) I noticed that some examples don’t take into account the expectation operator at t-1.

Example: pi_t = E_t-1{kappa*(-x_t) + beta*pi_t+1} // 4.22 from the paper*(-x) + beta*pi(+1); //Implementation of 4.22 in many Dynare Code Examples

pi = kap

I tried to implement equation 4.22 again by using an auxiliary.

pi_t1 = (-1)*kappa*x(+1)+beta *pi(+2);

pi = pi_t1(-1);

but it failed or changed the dynamics of the model.

Why do I have to implement 4.22 like above?

Because I’m a bloody beginner I’m very thankful for any helpful comments.

I add my .mod-file for the BGG model below. FinancialAccelerator.mod (4.0 KB)

Best regards

Max1