I know this topic has been covered in numerous topics on the forum, but as I still have problems after revising the timing of my model, I thought it might be worth a shot to see if anyone out there could help me.
Basically, I’m trying to construct a model with financial frictions in terms of collateral constraints, following Iacoviello (2005), with extensions in terms of long-term debt (approximating a 30-year annuity, following Kydland et. al. 2012), a banking sector with imperfect competition on the loan side (following Gerali et. al. 2009) including a Calvo setup on setting the market interest rate, to proxy the coexistence of adjustable and fixed-rate debt. Furthermore, the policy interest rate is set exogenously for the time being. The model has not yet been fully calibrated.
When running the .mod file I run into the problem:
“Blanchard Kahn conditions are not satisfied: indeterminacy”
In deriving the price setting scheme(see attached file), I have followed the procedure in:
(Thanks to Johannes Pfeifer for the thorough derivation, it is greatly appreciated!)
The problem of the retailer is identical to that in Iacoviello (2005).
I can’t shake the feeling that I might be missing something blatantly obvious, either in the timing of my model or in deriving the price setting.
Any help would be greatly appreciated!