Hello.
I’m trying to replicate the paper by Bianchi (2012) : “Monetary/Fiscal Policy mix and Agents’ Beliefs”.
Unfortunately if i write down the linearised equations as they are on the paper, then i get that the Blanchard Conditions are not met (3 explosive eigenvalues and 4 forward looking variables).
The only way I manage to make the simulation begin is to lag one forward looking variable (namely R_m), but i don’t think that’s the way to go.
I checked the model over and over again. Maybe some expert eyes, can tell me where the problem is.
As parameter values I use the posterior mode given in the paper.
the paper is here :http://public.econ.duke.edu/~fb36/Papers_Francesco_Bianchi/BianchiIlut_Policy_Mix.pdf
Thanks in advance for any advice
List_of_Equations.pdf (101 KB)
BianchiFinale.mod (2.21 KB)