# New Keynesian Model from Gali
**URL:** https://forum.dynare.org/t/new-keynesian-model-from-gali/2845
**Category:** Dynare contributions and examples
**Created:** [20 November 2012 20:44 UTC](https://forum.dynare.org/t/new-keynesian-model-from-gali/2845 "2012-11-20T20:44:55Z")
**Posts on this page:** 2
**Page:** 1
### Author:  [@ger163609](https://forum.dynare.org/u/ger163609)
#### Post date: [20 November 2012 20:44 UTC](https://forum.dynare.org/t/new-keynesian-model-from-gali/2845/1 "2012-11-20T20:44:55Z")
I have set up this New Keynesian Model of two countries in a Currency Union. It is correspondent to the model from the book of Jordi Galí. Unfortunately the Blanchard-Kahn-Conditions of this model are not met. I do not understand what the problem is. There are 2 New Keynesian Philips Curves, 2 Dynamic IS curves and 1 Taylor rule. The NKPC and the DIS depend on foreign and domestic shocks and output gaps.
Parameter calibrations don’t change the problem.
H means Home country, F foreign country.
var y\_H, y\_F, y, pi\_H, pi\_F, pi, g\_H, g\_F, a, v, i;
Could you help me out? thanks.
//y Output, pi Inflation, g goverment shocks, a technology shocks, v interest rate shocks, i interest rate.
varexo epsilon\_a epsilon\_g\_H epsilon\_g\_F epsilon\_v;
parameters sigma, rho, phi, alpha, beta, theta, epsilon, phi\_pi, phi\_y, rho\_a, rho\_v, rho\_g\_H, rho\_g\_F, omega, lambda, sigma\_alpha, kappa\_y\_H, kappa\_y\_F, kappa\_g\_H, kappa\_g\_F, mu, zeta;
alpha = 0.5;
beta = 0.99;
theta = 2/3;
epsilon = 6;
sigma = 1;
phi = 1;
rho\_v = 0.5;
rho\_a = 0.9;
rho\_g\_H = 0.9;
rho\_g\_F = 0.9;
phi\_y = 0.5/4;
phi\_pi = 1.5;
rho = -1_log(beta);
lambda = (1-theta)_(1-beta_theta)/theta;
omega = sigma + (sigma-1)_(1-2_alpha);
sigma\_alpha = (1-2_alpha+2_alpha_omega)/sigma;
kappa\_y\_H = lambda\*(sigma\_alpha\*(1-alpha+alpha_omega/sigma) + phi);
kappa\_y\_F = lambda_(sigma - sigma\_alpha\*(1-alpha+alpha_omega/sigma));
kappa\_g\_H = -1_lambda\*(sigma\_alpha\*(1-alpha+alpha_omega/sigma));
kappa\_g\_F = -1_kappa\_y\_F;
mu = (omega - 1);
zeta = mu_alpha_sigma\_alpha/(sigma-mu_alpha_sigma\_alpha);
model (linear);
y\_H = y\_H(+1) - 1/(sigma-mu_alpha_sigma\_alpha)_(i - rho - pi\_H(+1)) - rho\_g\_H_g\_H + zeta\*(y\_F(+1)-y\_F) + (1-rho\_g\_F)_zeta_g\_F;
y\_F = y\_F(+1) - 1/(sigma-mu_alpha_sigma\_alpha)_(i - rho - pi\_F(+1)) - rho\_g\_F_g\_F + zeta\*(y\_H(+1)-y\_H) + (1-rho\_g\_H)_zeta_g\_H;
pi\_H = beta_pi\_H(+1) + kappa\_y\_H_y\_H + kappa\_y\_F_y\_F + kappa\_g\_H_g\_H + kappa\_g\_F_g\_F - (1+phi)a;
pi\_F = betapi\_F(+1) + kappa\_y\_H_y\_F + kappa\_y\_F_y\_H + kappa\_g\_H_g\_F + kappa\_g\_F_g\_H - (1+phi)a;
y = (y\_H + y\_F)/2;
pi = (pi\_H + pi\_F)/2;
i = phi\_yy + phi\_pi_pi + v;
a = rho\_a_a(-1) + epsilon\_a;
g\_H = rho\_g\_H_g\_H(-1) + epsilon\_g\_H;
g\_F = rho\_g\_F_g\_F(-1) + epsilon\_g\_F;
v = rho\_v_v(-1) + epsilon\_v;
end;
initval;
y\_H = 0;
y\_F = 0;
y = 0;
pi\_H = 0;
pi\_F = 0;
pi = 0;
i = 0;
g\_H = 0;
g\_F = 0;
a = 0;
v = 0;
end;
steady;
check;
shocks;
var epsilon\_g\_H = 0.75^2;
var epsilon\_g\_F = 0.75^2;
var epsilon\_a = 1^2;
var epsilon\_v = 0.25^2;
end;
stoch\_simul(irf=12);
---
### Author:  [@ger163609](https://forum.dynare.org/u/ger163609)
#### Post date: [21 November 2012 11:43 UTC](https://forum.dynare.org/t/new-keynesian-model-from-gali/2845/2 "2012-11-21T11:43:17Z")
I forgot to attach the mod file.
I would be happy if you could help me out!
thanks!
[NKM\_second\_version\_21\_11\_2012.mod](https://forum.dynare.org/uploads/default/original/2X/f/f6d5ec3cfa1f05e014f62410e993f92dec3f83c4.mod) (2 KB)