How to solve: Gertler and Kiyotaki (2010)

Hi everyone,

afte my doing some simple models in dynare, my first only slightlly more difficult try failed. I tried to figure out whats wrong but can’t. I try to simulate a basic RBC model with financial friction. It is a simplified version of the perfect-interbank-market model from Gertler, Mark and Kiyotaki, Nobuhiro (2010): Financial Intermediation and Credit Policy in Business Cycle Analysis;
e.u-tokyo.ac.jp/utipe/news/macro0622.pdf
i omitted investment adjustment costs, habit formation and government expenditures and set pi_i = 1. I used the same parameters as reportet there. In their paper the authors succeed to simulate the model, so i wonder what is wrong with my attempt. Even if i include adjustement costs and habit formation it still doesnt work.
What happens is that, depending on parameter values, intitial values and the labor market specification i get either “initial values incompatible with equations…”, “maxit has been reached”, “spurious convergence” or “BK conditions not satisfied”. Another thing that puzzles me is why, while most steady state values found by dynare are equal to those i find in mathematica, some differ (the variables describing bank balance sheet: Debt aSsets Networth)

Both the dynare and the mathematica file are apended.

What else can i try to make that model work, change parameteres (is there a way to find parameters resulting in determinancy?) , assumptions… ???

Any help would be a great christmas present! Thanks a lot!

Dominik
RBC_FF5.mod (2.01 KB)
RBC_FF5.m (2.53 KB)