Indeterminacy

Stochastic simulations
1

I tried to replicate “A Small New Keynesian Model of the New Zealand Economy” rbnz.govt.nz/-/media/Reserve … p06-03.pdf building on Gali and Monacelli 2005. The 14 log-linearised equations are clearly given in the appendix. However when putting them in a mod-file the below error occurred when using Dynare 4.4.3 as well as yesterday’s unstable version.

Thanks a lot for your help

STEADY-STATE RESULTS:

c 0
y 0
ystar 0
a 0
phi 0
q 0
s 0
pi 0
pif 0
pih 0
pistar 0
r 0
rstar 0
mc 0
??? Error using ==> print_info at 45
Blanchard Kahn conditions are not satisfied: indeterminacy

Error in ==> stoch_simul at 98
print_info(info, options_.noprint, options_);

Error in ==> nz1 at 254
info = stoch_simul(var_list_);

Error in ==> dynare at 180
evalin(‘base’,fname) ;
nz1.mod (1.45 KB)

2

My guess is that the problem comes from the last equation

rstar-rstar(+1)=RHORSTAR*(rstar(-1)-pistar)+vrstar;
It is different from the Appendix. Moreover, there is no way to disentangle which part of the exogenous foreign real interest rate comes from rstar and which from pistar. They are only jointly determined. Therefore. you might need to define rstar(-1)-pistar as one variable.

3

Thank you very much! It was exactly the way you suspected. After correcting the typo and redefining rstar(-1)-pistar, I retrieved some results.

4

I’m having this same problem. How can I set this variable.
I tried in many ways but failed. Could you give an example of how to set this new variable. I tried but I could not. I think I do not understand.

Model.mod (5.0 KB)

5

See my reply at Error: The generalized Schur (QZ) decomposition failed - #2 by jpfeifer

6

I followed the steps suggested here and others and still haven’t gotten results similar to the one in the article. Anyway, thanks for trying to help me.