When I’m running my model, it gives me the following errors:
There are 12 eigenvalue(s) larger than 1 in modulus for 11 forward-looking variable(s) The rank condition ISN'T verified! Error using print_info (line 42) Blanchard Kahn conditions are not satisfied: no stable equilibrium Error in stoch_simul (line 98) print_info(info, options_.noprint, options_); Error in NK_lumpsumtaxes (line 379) info = stoch_simul(var_list_); Error in dynare (line 180) evalin('base',fname) ;
I know this is not a new question and I checked all other questions and answers provided in the forum but still cannot figure out my problem. Here are the two equations causing the above problems:
var pi //inflation r //gross nominal interest rate y //real output tau //lump-sum tax rate b //real bond gamma //trend growth rate of the economy ; parameters gbar // constant govt spending psi_tau // the sensitivity of taxes to real debt rho_tau // tax persistence sbbar // steady state govt debt to GDP ratio taubar // steady state lump-sum tax rate ; Model; //. GBC b + tau*y = (r(-1)/pi)*(b(-1)/exp(gamma)) + gbar; //. Lump-sum tax tau = (tau(-1)^rho_tau)*((taubar*(((b(-1)/y(-1))/sbbar)^psi_tau))^(1-rho_tau));
I didn’t use predetermined_variables command. I’m running a traditional NK model just like the NK_baseline.mod in examples. Before I introduced fiscal variables into the model, everything is fine. However, when I introduced the above two equations into the model, the errors show up. To make things simple, I set govt spending constant and only have lump-sum taxes. My tax rule follows Leeper’s specification to stabilize real debt, which includes a response of tax to real debt.
Is there anything wrong with the timing of debt? Or is the problem due to fiscal rule set-up or parameterization?
I can provide more information if you need.
Highly appreciate your help!