From one type to two types of agents

Thanks professor Pfeiffer. I think that it is the model’s feature to have an unit root. And it should be combined with something like debt-elastic interest rate premium.

I’ve looked at some similar models, like the one developed by Chen, Curdia and Ferrero (2012), “The Macroeconomic Effects of Large-Scale Asset Purchase Programs”. There’re some other people’s codes available on this forum about this paper, e.g. Deterministic Linear Model
and also Problem with Steady-state and Estimation

The code attached could successfully replicate the paper’s calibration. One unit root appears, and that one corresponds to one type’s consumption. There’s no BK or rank conditions problem.

But I got a new problem when I try to replicate Chen et al.'s model,

the steady state value of RL should be RL = (exp(gamma)*exp(lnPi))/beta_r, according to the equation (C.1) in the online appendix.

However, I must use RL = (1+exp(gamma)*lnPi)/beta_r to get the code work. This problem also appears in the codes listed in the above posts.

If I use the steady state value of RL as (exp(gamma)*exp(lnPi))/beta_r, I still get an error about the BK condition no matter how large the parameter phi_T is.

Appendix.pdf (464 KB)
Chen_et_al-2012-The_Economic_Journal.pdf (378 KB)
ccf_rep.mod (6.57 KB)