Timing problem in prices in Euler equations

Hello, I have been trying for a while to reproduce Corsetti, Dedula and Leduc (2008) without success. I think the error is in lines 97- 103, where the Euler equations for countries H and F are located. Currently, the mod file only runs if I set R, capital rental rate, as predetermined (R(-1)) in the budget constraint, but that is inconsistent with R(+1) in the Euler equations. If I fix this inconsistency, the model doesn’t run (blanchard-kahn).

I have tried moving the timing of capital variables kh, kf, kn1 and kn2, the timing of r (real interest rate), and simplifying equations, but nothing. The model is not that big so maybe the error is obvious for someone else.

I attach the .mod, the steady state file, and the derivation file in pdf. If anyone can take a look, it would be greatly appreciated. Thank you

CDL08.mod (9.9 KB)
CDL08_steadystate.m (8.1 KB)

equations.pdf (261.4 KB)

You did not make the timing, but it looks like the reason is:

Hello Professor, thanks for your reply. I fixed the capital as suggested by setting

k1(-1)  = kH + kN1; and
k2(-1)  = kF + kN2;

My problem remains the same. I think the problem may come from the timing of prices (r and R1,R2) in the Euler equations and budget constraint (BC).

With the following lines, the code runs, but I think it is wrong because R1 (and R2, for the foreign country) and r should be in expectation in the Euler equation.

Euler equation

lamb1*pHbar  = exp(-nu1)*lamb1(+1) *(pHbar(+1)*(1-DELTA) + R1 );    
lamb1             = exp(-nu1)*lamb1(+1) *(1+r) ;


pH1*cH1 + pF1*cF1 + pN1*cN1 + bH + pHbar*iH = w1*l1 + R1(-1) *k1(-1) + (1+r(-1))*bH(-1); 

I think that the correct setup should be
Euler equation

lamb1*pHbar  = exp(-nu1)*lamb1(+1) *(pHbar(+1)*(1-DELTA) + R1(+1)  );    
lamb1             = exp(-nu1)*lamb1(+1) *(1+r(+1) ) ;


pH1*cH1 + pF1*cF1 + pN1*cN1 + bH + pHbar*iH = w1*l1 + R1*k1(-1) + (1+r)*bH(-1); 

But this last setup yields 8 eigenvalues>1 for 7 forward looking variables and colinear relationships in all prices, so I’m stuck here. What should be the correct timing here? Thank you

The return to capital is almost never predetermined. If that “fixes” your timing issue, you still have not found the correct timing.