Hello there, I was wondering if:
Dynare can solve a system with an unstable steady state. And if Dynare can do this, how? Or more precisely, how do I prevent the error that there is no stable steady state? (but provide the analytical solution of the unstable steady steady);
Would the results be valid?? I tried to find some references on this, but I can’t find any.
Many thanks in advance!
What do you mean with “unstable steady state”. That is an oxymoron. The steady state is a resting point of the system. It can be non-unique or the dynamics of the system around the steady state can be explosive/unstable.
With an unstable stable I meant a system that can implode/explode when it deviates from the s.s. (at least in expectations: I will use Bounded Rationality).
Can dynare give me the approximate solution of the system around the s.s.?
No, at the current stage Dynare only allows computing unique bounded solutions. That is, the Blanchard-Kahn conditions need to be satisfied