Issues with Blanchard Kahn Conditions


I fhave a problem with my DSGE model. The error is “Blanchard Kahn conditions are not satisfied: no stable equilibrium”:

Error message:
There are 5 eigenvalue(s) larger than 1 in modulus
for 4 forward-looking variable(s)
The rank condition ISN’T verified!

I tried the diagnostic command and it returns me:
The Jacobian of the dynamic model contains imaginary parts. The problem arises from:
MODEL_DIAGNOSTICS: The problem most often occurs, because a variable with
MODEL_DIAGNOSTICS: exponent smaller than 1 has been initialized to 0. Taking the derivative
MODEL_DIAGNOSTICS: and evaluating it at the steady state then results in a division by 0.

What’s wrong with my code?

I attach the mod file

Thank you very much!!
two.mod (4.0 KB)

There is most probably a timing issue somewhere (or a fundamental issue leading to explosiveness). Is there a reason your model does not feature endogenous state variables? There are no true backward-looking terms