Taylor rule modification - Blanchard and Kahn conditions not satisfied

Dear all,

I am trying to modify a DSGE model by changing the generalized Taylor rule. I would like to use an unemployment gap instead of output gap. However, when try to estimate the model, I get an error message saying that Blanchard & Kahn conditions not met.

I’m not very experienced in DSGE modelling, but as far my experience goes, this problem usually occurs when there is some sort of lag/lead discrepancy (please, correct me if I’m wrong). But I haven’t changed any lagged vars, so I don’t know where the problem might be. I have already tried everything I thought of to fix it and I’m absolutely clueless. I would be very grateful for any insights!

This is the model:
2014_model.mod (10.9 KB)
. Original Taylor rule and corresponding variables are commented as // ORIGINAL, while the ones that were added in order to modify the Taylor rule are commented as // ADDED. It should work fine with only the original ones.

Thank you!

Kindest regards.

Note: The name of the .mod file should of course not start with a number, I edited that in a hurry.

Coefficient on unemployment gap needed to be increased by far more than I tried in the first place. Solved.

1 Like