I am trying to replicate the model used by Jesper Linde and Mathias Trabandt in their Journal of Applied Econometrics Paper “Should We Use Linearized Models To Calculate Fiscal Multipliers” with Dynare. I am particularly interested in the recursiver formulation of the Kimball Aggregator.
However, I do have a timing issue as Dynare tells me that the Blanchard and Khan Conditions are not satisfied (the rank condition is not verified). The steady state computations, model diagnostics are working fine.
Maybe someone could help me out or give me a hint about my timing issue?
PS: I have attached my two mod files. The “Orig” corresponds to the baseline model used in the paper and in the “Simplified” version I got rid of both the fiscal variables and the flex-price economy. The timing issue is the same.
PS2: I can get a verified rank if I change e.g. “a”, i.e. the third variable used in the recursive formulation of the nonlinear pricing (and which is zero in the Dixit Stiglitz case), into a predetermined variable, but that doesn’t make sense to me.
PS3: Here are the mod files.
LindeTrabantSimplified.mod (7.6 KB)
LindeTrabantOrig.mod (12.5 KB)