Problem about Blanchard & Kahn conditions

Hello,I am trying to estimate a small open economy based on Gali and Monacelli(2005); there are two monetary policies as following:

When using dynare, all settings in the dynare code are same except for monetary policy . When monetary policy adopts policy 1, dynare operates normally, and when monetary policy adopts policy 2, dynare reports an error. The error message is as follows:

What is the reason for the professor’s error? How to solve it?

You say in your mod file that m_dc_H is demand for CBDC but how do you derive that? And does it make sense that the central bank directly manages demand for CBDC. This sounds a little strange to me. Shouldn’t there also be an interest rate on CBDC with which the central bank manages demand?

Are you sure that the second rule does indeed provide a unique determinate equilibrium? Your error suggests otherwise.

My consideration is that if the central bank regulates the economy by managing the supply of CBDC when CBDC does not bear interest, it is adopting quantitative monetary policy; But the policy equation is guessed :face_with_spiral_eyes:

I guess you found out the answer the hard way.

No,Professor,I am not sure.I just guess the second rule according to others’ paper.
provide a unique determinate equilibrium.Then, how do I determine that the second rule satisfies independent equilibrium? Is it derived from the model in steady state? :saluting_face:

No. There is a huge literature on determinacy. Often, one uses a simple model and computes the determinacy conditions manually. An example is Gali’s textbook.

Okay, I’ll go find some literature to study; Thank you, Professor

have a try on:
dm = m_dc_h - m_dc_h(-1);
-dm = rho*(-dm(-1))+(1-rho)(phipi+psi*y)+eps

yes yes,I have tried, it works! Thank you! :saluting_face: