Hello everyone,

I am trying to implement a super standard NK model but would like to set the monetary rule such that the real interest rate remains constant. Clearly this creates some indeterminacy problems and is not straightforward to implement. Does anyone has some suggestions?

I wanted to set a time varying intercept in the monetary rule, but do not know how to code this into Dynare.

Thanks!

Is there a reference that might help?

I am sorry, I am not sure what you mean with this. I have not found textbook or papers dealing specifically with this (even if being a simple question I am sure there is something). I just would like to see what is the behavior of a NK model when the central bank keeps the real interest rate fixed. However, imposing the deviation of real interest rate from the steady state being 0 no matter what, creates errors in the code (because of intederminacy problems, BK conditions not met).

I would like to know if someone has coded this in Dynare before and could provide the code, or if there is any standard rule for doing this.

If you run stochastic simulations that will not be feasible. You are assuming a stationary, i.e. time-invariant environment. A permanent real interest rate peg will result in indeterminacy.