Hello all,

I am building a simple RBC model with Kiyotaki and Moore (1997) type borrowing constraint, and I have a question about Blanchard & Kahn conditions: In my model, there are no error if we drop the borrowing constraint, but the borrowing constraint is same as a good deal of literature, for example, Land‐Price Dynamics and Macroeconomic Fluctuations - Liu - 2013 - Econometrica - Wiley Online Library. And the parameters we use are typical. Then, my question is, why introduce the borrowing constraint will cause this problem and how to solve it?

The detail information of this error in Matlab is:

RBC_km.mod (1.1 KB)

RBC_km_steadystate.m (3.1 KB)

There are 5 eigenvalue(s) larger than 1 in modulus

for 4 forward-looking variable(s)

The rank condition ISN’T verified!

MODEL_DIAGNOSTICS: No obvious problems with this mod-file were detected.

Error using print_info (line 32)

Blanchard & Kahn conditions are not satisfied: no stable equilibrium.

Error in stoch_simul (line 120)

print_info(info, options_.noprint, options_);

Error in RBC_km.driver (line 251)

[info, oo_, options_, M_] = stoch_simul(M_, options_, oo_, var_list_);

Error in dynare (line 281)

evalin(‘base’,[fname ‘.driver’]);

Thanks a lot!

John