Galí, López-Salido & Vallés (2007): Blanchard Kahn conditions are not satisfied: indeterminacy

Stochastic simulations
1

I am trying to replicate the model in the following paper:

Galí, J., López-Salido, J. D., & Vallés, J. (2007). Understanding the effects of government spending on consumption. Journal of the european economic association , 5 (1), 227-270.

However, dynare gives me the following errors:

Error using print_info (line 45)
Blanchard Kahn conditions are not satisfied: indeterminacy

Error in stoch_simul (line 100)
print_info(info, options_.noprint, options_);

Error in ModelGali (line 193)
info = stoch_simul(var_list_);

Error in dynare (line 235)
evalin(‘base’,fname) ;

I have understood that the error related to the Blanchard Kahn conditions typically related to the timing of variables. However, I could not find any mistakes. There probably are mistakes somewhere, but I have no idea where.

ModelGali.mod (2.0 KB)

2

Check all equations, particular the timing of your states k and b. The latter should be predetermined_variables .

3

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image1430×618 32.6 KB
The b should be as b=(1+rho)*(1-phi_b)*b(-1) + (1+rho)*(1-phi_g)*g + eps_b; like predetermined_variables k ?

4

Yes, indeed. Debt is a predetermined variable and needs to be declared as such to make the original notation consistent with Dynare’s timing convention.

5

I got it. Thanks professor.