Taylor rule problem

Stochastic simulations
1

I have the Taylor rule here ln(R/R0) = rho_R*ln(R(-1)/R0) + (1-rho_R)*( (phi_p)*ln(pi/pi0)+(phi_y)*ln(y/y(-1))) + eR;

phi_y = 0.2;

phi_p = 1.8;

Run the mod file and turn out: There are 7 eigenvalue(s) larger than 1 in modulus for 6 forward-looking variable(s) The rank condition ISN’T verified!

But if I change the phi_p = 0.8(<1) , it runs out without problem.

How should i choose the parameter phi_p in the Taylor rule?

fiscalGali1.mod (4.8 KB)

2

This suggests that debt in your model explodes and monetary policy needs to be passive to fund the government.