I’m trying to replicate a NK model with wage stickiness as in the Costa’s book, but now without log-linearizing it. I converted infinite sums as in the optimal wages & prive level equations into recursives. However, this gives me error “There are 6 eigenvalue(s) larger than 1 in modulus for 5 forward-looking variable(s).”
I searched for similar error and have indication that it might be due to “timing convention” issue. However I have no clue as to which variable to be shifted one-period in which equation and direction?
Enclosed the mod file.
costa01.mod (1.6 KB)