Hello Dynare Community
I have a two good open economy DSGE model that I am able to successfully run in a “baseline case,” however, when I add a new component to the model I run into an error telling me I have 4 eigenvalues larger than 1 in a modulus for 3 forward looking variables. The rank condition isn’t verified!
it also goes on to say that the Blanchard-Kahn conditions are not satisfied: no stable equilibrium.
In the new model, I add a variable for government capital, Kg, add a new equation that describes the evolution of the stock of government capital (which is your basic capital stock evolution), and add Kg as a factor of production for one of the goods (the “formal good”). I have attached the mod file.
I would appreciate it if anyone had any suggestions, and thanks in advance!
Model_KgLogs.mod (5.3 KB)