I’m new to Dynare. I’m trying to solve a new Keynesian Phillips curve system in FRB/US. I followed Pfeifer (2013) Remark 2, and ran steady; check; stoch_simul(); first. The output didn’t give me any errors or warnings. But when I ran the estimation step, it said " Blanchard & Kahn conditions are not satisfied: no stable equilibrium."
I’ve gone over the equations several times. I’m (almost) 100% sure that the equations are right (unless there are typos in their documentation).
As I added diffuse_filter in estimation, the estimation gave me no std errors and the following warnings:
POSTERIOR KERNEL OPTIMIZATION PROBLEM!
(minus) the hessian matrix at the “mode” is not positive definite!
=> posterior variance of the estimated parameters are not positive.
You should try to change the initial values of the parameters using
the estimated_params_init block, or use another optimization routine.
Warning: The results below are most likely wrong!
In dynare_estimation_1 (line 324)
In dynare_estimation (line 105)
In nkpc_new.driver (line 575)
In dynare (line 293)
Warning: Matrix is singular, close to singular or badly scaled. Results may be inaccurate. RCOND = NaN.
In dynare_estimation_1 (line 347)
In dynare_estimation (line 105)
In nkpc_new.driver (line 575)
In dynare (line 293)
Even after I added an empty estimated_param_init block with use_calibration option, I still got the warning.
Does that mean there is some problem with the model?
Do you think I should add a steady_state_model block so that I can guide Dynare to find the optimal? I’m pretty new to Dynare. I’m not really sure how to set steady-state values.
The unit root equations are to represent random walks. For example, pi_p_bar is the long-run inflation expectations. It is assumed to follow a random walk, same to r_bar (long-run federal funds rate expectations) and g (trends in the difference between price and wage price level).