I am trying to solve a sort of stereotype of small open economy’s DSGE model with bank.
The basic structure of my model as follows ;
Households : consume domestic good and foreign good, supply labour, deposit in bank
Capital Producer : input domestic good and foreign good for capital production, supply capital
Wholesale firm : produce output by using labour and capital, and sell it retail firm
borrow money from bank to acquire capital
Retail firm : purchase intermediate good and resell it to domestic market and export to foreign country
Bank : finance money from households’ deposit(D) and borrow from international financial market(EX)
lend money to wholesale firm(B)
For the banking sector, I referred Gerali (2010) "Credit and Banking in a DSGE Model of the Euro Area"
Central Bank : implement monetary policy
I attached my code, and there are some explanations in the code.
When I run this code,
I get error message “Blanchard Kahn conditions are not satisfied: indeterminacy”
and when I run model diagnostic
I get “colinear equations” among euler equation, UIPC and foreign interest shock equation.
But, to my knowledge, I don’t see what is wrong in my equations.
Could you help me to figure out what makes this problem?
I have been struggling with this matter for last 2 months, please have a look.
Thank you very much.
yoocnoh_basic_1.mod (9.4 KB)