Hi everyone. I found a replicating code for Gertler and Karadi 2013. I augmented it with a shock to sovereign bond returns and everything went smoothly.

Then I extended it to include a shock on the fraction of capital that can be diverted defined as theta in the paper and lambda in the code. More specifically, the lambda is now extended as lambda*(1+exp(ksimbda_ss)) where all the values associated with ksimbda are related to the new shock.

I can’t understand why I get this error “Blanchard & Kahn conditions are not satisfied: indeterminacy due to rank failure.” It could be related to the size of lambda after the shock but I’m not sure.

Can anybody help me?

theta_shock.mod (34.3 KB)

Are you sure `(1+exp(ksimbda_ss))`

is correct? With `ksimbda_ss=0`

the steady state of that expression will be 1+e\approx3.7

Thank you Professor. I changed it to lambda*exp(ksimbda_ss) but I get the same issue.

Is this the correct way to shock a parameter?

No, in that case the steady state would be about 2.7. You should have

```
lambda*ksimbda_ss
```

with `ksimbda_ss=0`