Dear all,

I am relatively new to Dynare, which may be the source of some confusion.

I am trying to replicate results from a GAUSS code solving a linear rational expectation model in King-Watson form, but run intro trouble. My hunch is that, like many in this forum, I am violating dynare’s timing convention.

Loglinearizing a set of FOCs gives the following set of equations in KW form:

AE_t(y_{t+1}) = By_{t} + C_0 \delta_t + C_1E_t(\delta_{t+1}) \\
\delta_t = \delta_{t-1} + e_t

Note that if y_t = \begin{bmatrix}
\lambda_t\\k_t
\end{bmatrix},

where \lambda_t and k_t are nx1 vectors, then A, B and C parameters take the following form:

A = \begin{bmatrix}
a & 0\\ 0 & a
\end{bmatrix}, B = \begin{bmatrix}
b& 0\\ b& b
\end{bmatrix}, C_0 = \begin{bmatrix}
0\\ c
\end{bmatrix}, C_1 = \begin{bmatrix}
c\\ 0
\end{bmatrix}

Assume we have n=2, then I have modelled those equations as:

`a11*lambda1(+1)+a12*lambda2(+1)= b11*lambda1 + b12*lambda2 + c13*delta1(+1) ;`

`...`

`a33*k1(+1)+a34*k2(+1)= b31*lambda1 + b32*lambda2 + b33*k1 + b34*k2+ c31*delta1 + c32*delta2;`

`...`

`delta1 = delta1(-1) + e1;`

which results in an error (Blanchard Kahn conditions are not satisfied: indeterminacy).

Pre-dating the second set of equations to

`a33*EXPECTATION(-1)(k1)+a34*EXPECTATION(-1)(k2)= b31*lambda1(-1) + b32*lambda2(-1) + b33*k1(-1) + b34*k2(-1) + c31*delta1(-1) + c32*delta2(-1);`

does not solve the problem either as:

`The following endogenous variables aren't present at the current period in the model: k1 k2`

What am I doing wrong?

KW_replic.mod (3.9 KB)