Rank condition not satisfied


I have a simple NK model, with price rigidities (no wage rigidities), capital, and Ricardian and non-Ricardian households.

I am having a problem with the rank condition when I run the model in Dynare. I’ve tried playing around with the parameters, and the rank condition disappears (and the program fully runs) when phi_pi (which is the CB reaction coefficient to inflation) is set to 1 or less. Everywhere in the literature this parameter is above 1, and additionally for my research it’s the most important parameter, so it’s the one thing that needs to be close to “reality”

I can’t tell why this problem persists with the program. I have checked the equations, and in my opinion there are no redundant equations. Both capital and bonds are predetermined, so I’ve written them as such (so K(-1) and K, and B(-1) and B).

The programs are attached, so you can all have a look at them.

Thank you very much in advance for your help.
steady_stateHH.m (2.32 KB)
mainHH.m (3.53 KB)
nk3HH.mod (6.82 KB)

First a general remark: use a proper steady state file. The weird structure with an external file and set_param_value is not a good way.

I would recommend checking your timing again. If your bonds are nominally risk-free, why does the nominal interest rate set today and paid on nominal bonds show up in the Euler equation with R(+1) timing? That way, the nominal return is uncertain, not risk-free.