Dear all

I have faced a problem. I took a mod from this forum, more specifically Matrix close to singular or badly scaled, Boja_SOENK.mod which is quite workable. Then I checked the mod against the original paper and found two small mistakes in the mod. What I found were following.

In the original Boja mod(line 104), mc_h = (sig/(1-h))*(c-h*c(-1))+vphi*l-z_h**+* gam2(1-gam1)v+gam1mu;*(c-h

I changed it to mc_h = (sig/(1-h))

*c(-1))+vphi*l-z_h**-*

*gam2*(1-gam1)

*v+gam1*mu;, (only sign before gam2) following appendix 5, equation 5.8, original paper.

In the original Boja mod(line 142), q = psi**+**(1-gam2*(1-gam1)) v-gam1mu;
I changed it to q = psi**-**(1-gam2*(1-gam1))

*v-gam1*mu; (only sign after psi), following appendix 5, equation 5.19, original paper.

After these correction, Dynare gives an error, saying that

There are 4 eigenvalue(s) larger than 1 in modulus

for 5 forward-looking variable(s)

The rank conditions ISN’T verified!

??? Error using ==> print_info at 42

Blanchard Kahn conditions are not satisfied: indeterminacy

Error in ==> stoch_simul at 71

print_info(info, options_.noprint);

Error in ==> Boja_SOENK at 346

info = stoch_simul(var_list_);

Error in ==> dynare at 120

evalin(‘base’,fname) ;

It seems that the first correction doesn’t have any effect. But the second one changes everything when I make the corrections one by one.

Help help me out here. Thank you in advice.

Please find necessary files attached.

Paper.pdf (381 KB)

dj.mod (4.56 KB)

Original_Boja.mod (4.57 KB)