I am trying to write a New Keynesian model with a non-durable and a durable good. The non-durable good features sticky prices; the durable good features flexible prices.
The economy presents a monetary authority that follows a Taylor rule that tracks only inflation for the non-durable good.
I should also add that for simplicity I assume that the depreciation rate of the durable good is zero (delta=0).
I suppose a monetary shock.
Upon running Dynare, I obtain the error message: “There are 4 eigenvalue(s) larger than 1 in modulus
for 5 forward-looking variable(s) The rank condition ISN’T verified!”
"Error using print_info (line 45)
Blanchard Kahn conditions are not satisfied: indeterminacy
Error in stoch_simul (line 100)
print_info(info, options_.noprint, options_);
Error in RANK_durprod_dgflex (line 330)
info = stoch_simul(var_list_);
Error in dynare (line 235)
Please find attached the Dynare file with the code of the model.
What mistake am I making? I cannot figure out how to obtain determinacy. Any help would be much appreciated.
Model_durprod_dgflex.mod (7.4 KB)
Please find attached a pdf containing the model’s equations, variables, parameters and steady state variables’ values.
Thesis_model_dg.pdf (230.1 KB)