# Model recreation gone wrong?

Hey there,

first of all, I am new to this forum and an undergraduate student, so feel free to correct me if I do not follow ‘forum protocol’. I am currently trying to recreate a paper from Furlanetto et al. called ‘investment shocks and macroeconomic co-movement’. I simply used the log-linearized equations given in the paper, but it says that the Blanchard-Kahn conditions are not satisfied since some eigenvalues are >1. I am also struggling to get correct steady-state values ( = 0).
Since I feel completely overwhelmed by this task, I would appreciate any kind of help.

PS: I also dont know yet how plotting works and can’t find a good source that explains it well. Let me know if you know a good guide. The current plot-code was given to me by the authors of the paper.

var k i m y cr wp n co r pi_p q rk c pi_w mc;
varexo e;
parameters delta beta rho wnpc eta lambda kappa_w phi alpha kappa_p
theta_p phi_pip gamma_g gamma_c gamma_i mu_p epsilon_w mu_w;

beta = 0.99;
lambda = 0.5;
alpha = 0.33;
delta = 0.025;
phi_pip = 1.5;
rho = 0.73;
gamma_g = 0.2;
gamma_i = 0.18;
gamma_c = 0.62;
mu_p = 1.2;
wnpc = (1-alpha)(1/gamma_c)mu_p;
phi = 1; % Gali = 0.2
theta_p = 0.5; % Gali = 0.75
theta_w = 0.75;
eta = 7; % Gali = 1
epsilon_w = 4;
mu_w = epsilon_w/(epsilon_w-1);
phi_w = theta_w
(1+phi
epsilon_w)(epsilon_w-1)/((1-betatheta_w)(1-theta_w));
kappa_p = (1-beta
theta_p)*(1-theta_p)/theta_p;
kappa_w = (epsilon_w-1)/phi_w;

model (linear);

k = (1-delta)k(-1)+delta(i+m);
m = rhom(-1)+e;
cr = wnpc
(wp+n);
co = co(+1)-(r-pi_p(+1));
i-k(-1) = eta*(q+m);
c = lambdacr+(1-lambda)co;
pi_w = beta
pi_w(+1)+kappa_w
(c+(1/kappa_w)n-wp);
k(-1)-n = wp-rk;
y = alpha
k(-1)+(1-alpha)n;
pi_p = beta
pi_p(+1)+kappa_pmc;
mc = wp-(y-n);
r = phi_pip
pi_p;
(1-gamma_g)y = gamma_cc+gamma_i*i;
wp = wp(-1)+pi_w-pi_p; %siehe Furlanetto

end;

initval;

k = 0;
i = 0;
m = 0;
y = 0;
cr = 0;
wp = 0;
n = 0;
co = 0;
r = 0;
pi_p = 0;
q = 0;
rk = 0;
c = 0;
pi_w = 0;
mc = 0;

end;

check;

shocks;
var e; stderr 1;
end;

stoch_simul(order=1,irf=15);

mo_02.mod (3.5 KB)

I just realized that the code isn’t readable like that because of the " * " and " _ ".
So here it is.

The equation

q = (1-beta*(1-delta)*rk(+1))+beta*q(+1)+beta*delta*m(+1)-(r-pi_p(1));

is not properly linearized. It contains a constant of 1, throwing off your steady state.

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