TANK model equations

Stochastic simulations
1

Hi everyone,

I am trying to solve a simple TANK model based on Bilbiie et al. (2021). Essentially the same model without the transfer/government spending part. When I try to solve it with dynare, I usually get the following message:
There are 2 eigenvalue(s) larger than 1 in modulus
for 3 forward-looking variable(s)

The rank condition ISN’T verified!

Only for the parameter combination LAMBDA=0.5 and TAUD = 0.5 (so essentially a RANK model) does it seem to work. I am new to TANK models and I can’t really find the issue. Would be super nice if anyone could help me. I attached the mod file and steady state file.
LRRTANK.mod (1.4 KB)
LRRTANK_steadystate.m (1.4 KB)

Thank you already in advance.

2

You may wanna watch this video, they show how to know which parameter combinations (in the parameter space) will violate or not violate BK conditions using dynare.

2 Likes
3

Given that it works for a particular special parameterization, I would expect it to be something systematic in the setup, not jut a parameter issue.