Problem about Blanchard & Kahn conditions

Stochastic simulations
1

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

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

3

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?

4

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

5

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:

6

I guess you found out the answer the hard way.

7

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:

8

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.

9

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

10

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

11

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