I’ve been replicating a classic paper Financial Business Cycle written by Matteo Iacoviello given the origin dynare codes on his homepage.
I transformed the original one to a log-linear form. But the result shows: The rank condition ISN’T verified!. I compare the value of all the parameters and steady-states variables, and they are exactly the same. That makes me really confused. Could anyone help me with it?
I also attach the original code by Matteo Iacoviello named fbctiny.mod and the log-linear form mod file written by myself named fbctinylinear.mod.
Thanks you so much!
fbctiny.mod (2.0 KB) fbctinylinear.mod (2.5 KB)
Usually, it’s a matter of timing mistakes. Why do you need to linearize the model by hand?
Thank you soooo much for your reply. I’m still in the process of learning how to use dynare. I want to make sure I’m doing it right, so I came up with an idea. I find some codes of classic papers online, rewrite them using another methods and compare the results of the original codes. I’m really confused that why the linearization results couldn’t pass the BK condition, as the time subscript of each variable is exactly the same. Would you mind explaining the details about the timing mistakes? I don’t really get it. Thanks for your kind and patient.
It is never a good idea to manually linearize except to gain intuition. It is simply too error prone.
Any mistake can make the BK conditions fail. Often it’s a timing mistake, but that is not necessary.
OK, I get it now. Thank you.