I’m trying to implement a very simple deterministic OLG model built upon the framework of Gertler (1999) and Ferrero (2010). It’s a closed economy where, for now, I want to study how changes in demographic factors, fiscal policy stances, and eventually (but not yet) also in the Solow residual affect the real interest rate.
I have written the model in dynare and written a code for finding the steady state, which is running well. My only problem is that even though the Blanchard-Kahn conditions are satisfied, I still get the message that the rank conditions aren’t verified:
[quote]There are 8 eigenvalue(s) larger than 1 in modulus
for 8 forward-looking variable(s)
The rank conditions ISN’T verified![/quote]
I know that the Proposition 1 from Blanchard and Kahn (1980) is proved by assuming that a rank condition they allude to in the paper is verified. However, they also say in the paper that “(t)he propositions can be extended when this assumption is relaxed”. I am no math expert, so I don’t actually know if this is my actual problem. I’m also sending my files. I will be very grateful if anyone could help me.