Negative steady-state and rank condition

Hello everyone,

I am working on a model with two types of agents, one is borrowing via loans, and another is saving via deposits. There are 23 endogenous and 1 exogenous variable. Running the attached Dynare code, I face two issues:

  1. Negative steady-state values for variables that cannot be negative, e.g., consumption. There are also weird steady-state values for other variables.

Is this because of the wrong values of calibrated parameters or initial values, or maybe the derivations are not entirely correct?

  1. More importantly, even though I get the equal number for eigenvalues larger than one and forward-looking variable(s), I still get the following error: The rank condition ISN’T verified!.

I guess the problem of the rank condition must be related to the timing. I have modified the timing of loans and deposits or their related interest rates in different settings; however, I get the same error every time. Is there any other way to fix this problem?

I have attached the mod file and a pdf file to clarify the variables and equations.

I really appreciate any help you can provide.

Newcode.mod (6.1 KB)

NewQuestion.pdf (128.9 KB)

Focus on the wrong equations. They may explain the BK violation.

0 = A- rho_a*A(-1) - shock_A;

implies a steady state of 0 for A. That does not work with

0 = Y - A*H;
1 Like