Hi everyone, i am new to Dynare. Currently I am trying to replicate the result from Bernanke an Gertler 1999, which is the modified version of BGG model with exogenous bubble. The problem i am dealing with is, there are 18 equations in the model but only with 17 endogenous variables. Have anyone tried to do this with Dynare and have the same problem? Or am I missing something here? Please help!!
I have added the link of the article below, please have a look!!
nber.org/papers/w7559.pdf
can you post your code?
From the paper I see 18 equations for 18 endogenous variables
Hi Aliburm,
If you derive the whole model of BGG with Bubble, then you will find that equation (A.6) is redundant. Because the firms are making decision of buying and selling capital based on market price S_t, not Q_t. However, we still need Q_t to be derived as the true value, so that’s why we have (A.4) from capital producers which determines Q_t.
Or generally looking, the “Return to stocks and capital” part comparing to BGG is now 2 more variables with three more equations…
Best,
Ethan