Unless I specify the planner’s discount factor to be marginally above the private sector’s discount factor, I run into indeterminacy problems. To get a determinate solution, the planner’s discount factor only needs to be marginally different to the private sector one (e.g. 0.99001 vs. 0.99)
I have experienced this issue with different models – from a simple New Keynesian model to a real model with heterogeneous agents (the .mod file for the simple New Keynsian model is attached).
Is there an explanation for such phenomenon?
Many thanks in advance,
Bianca
NK.mod (14.4 KB)