Dear all

I have a 2 country NK model with tradable good only, which works OK. But when I add nontradable good sector, I have Blanchard Kahn conditions problem (22 eigenvalues>1 and 20 forward looking variables) . I have just found a trick that fix the problem but I am not sure if I am doing right.

please see line 88 and 90, which are the capital market clear equations for home and foreign countries. All capital in one country equal to the sum of capital used in tradable good sector and nontradable good sector in this country. s stand for foreign country variables, t stand for tradable and n stand for nontradable. At the beginning i use the current period timing and I have the Blanchard Kahn conditions problem (no ‘1’ for all variables in these two equations). I also use model_diagnostics and there is no return. But the problem is fixed if I simply forward this two equation one period ahead (24 eigenvalues>1 and 24 forward looking variables). I guess I need to let dynare know that sector capital are forward looking variables by doing so. Otherwise dynare will treat them as predetermined variables because I only have capital accumulation and capital Euler for overall capital. however, this trick makes sector capital enter model either at t-1 or t+1.

steadystate_nontradable_lunch.m (2.52 KB)

steadystate_nontradable_fun.m (2.04 KB)

PtmNontradable_model_stationary.mod (15.6 KB)