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I followed a paper "Expansionary fiscal shocks and the trade deficit(2005)" and have some trouble in replicating the results. I constructed a two-country-model to examine the global policy transmission.The code is：

Code: Select all

var c lmd m pc w h rk pi pdb bf pgb
 e pfb k i mc y yd pdv pfv pd
 pf cd cm id im pii bg tao nx r
nfa gz g
c1 lmd1 m1 pc1 w1 h1 rk1 pi1 pdb1 bf1 pgb1
 e1 pfb1 k1 i1 mc1 y1 yd1 pdv1 pd1 pf1
 cd1 cm1 id1 im1 pii1 bg1 tao1 nx1 nfa1 r1
 gz1 g1;

varexo u_g u_gz u_g1 u_gz1;

parameters sigma beta epsi delta kesi sitap alphe
rho wc wi gamma_i gamma_pii gamma_y gamma_h gamma_k v1 v2  rho_g rho_gz
H CDC CFC IDI IFI R PII BGY MY GY TY WHY RKY IKY CDY IDY YDY CFY IFY CMY NXY IMY BFN PYMN PYN;

sigma=2;beta=0.99;epsi=2.353;H=0.3;delta=0.025;kesi=0.75;sitap=2;alphe=0.33;
rho=2;wc=0.09;wi=0.38;gamma_i=0.8;gamma_pii=0.6;gamma_y=0.28;gamma_h=0.2;gamma_k=0.3;v1=0.001;v2=0.01;rho_g=0.8781;rho_gz=0.3049;
BGY=0.2;CDC=0.5;CFC=0.3;IDI=0.6;IFI=0.2;R=0.01;PII=0.01;MY=0.9;GY=0.3;TY=0.3;WHY=0.3;RKY=0.1;IKY=0.1;CDY=0.1;IDY=0.1;YDY=0.8;CMY=0.1;NXY=0.1;IMY=0.1;
BFN=0.2;PYMN=0.4;PYN=0.4;

model(linear);

lmd+pc+sigma*c=0;
(beta-1)*(epsi-1)*pc-(beta-1)*epsi*m=lmd(+1)-lmd;
(1-H)*lmd+(1-H)*w=H*h;
lmd+pi+(1-gamma_k)*(1-beta+beta*delta)*(lmd(+1)+rk(+1))-gamma_k*delta*(lmd(+1)+pi(+1))=0;
lmd(-1)+pdb=lmd;
lmd(-1)+pgb=lmd;
lmd+e+pfb-lmd(+1)-e(+1)=0;
k(+1)=(1-delta)*k+delta*i;
w=mc+y-h;
rk=mc+y-k;

pdv/(1+sitap)-mc+beta*kesi*((pii+pdv(+1))/(1+sitap)-mc(+1))+beta^2*kesi^2*((pii(+1)+pdv(+2))/(1+sitap)-mc(+2))=0;
pd=(1-kesi)*pdv+kesi*pd(-1);
(e+pfv)/(1+sitap)-mc+beta*kesi*((pii+e(+1)+pfv(+1))/(1+sitap)-mc(+1))+beta^2*kesi^2*((pii(+1)+e(+2)+pfv(+2))/(1+sitap)-mc(+2))=0;
pf=(1-kesi)*pfv+kesi*pf(-1);
c=wc^(rho/(1+rho))*CDC^(1/(1+rho))*cd+(1-wc)^(rho/(1+rho))*CFC^(1/(1+rho))*cm;
i=wi^(rho/(1+rho))*IDI^(1/(1+rho))*id+(1-wi)^(rho/(1+rho))*IFI^(1/(1+rho))*im;
pd=rho*c-rho/(1+rho)*cd+pc;
pf1=rho*c-rho/(1+rho)*cm+pc;
pd=rho*i-rho/(1+rho)*id+pi;
pf1=rho*i-rho/(1+rho)*im+pi;

yd=alphe*k+(1-alphe)*gz+(1-alphe)*h;
yd-cd-id=cm1+im1;
r=gamma_i*r(-1)+R+PII+gamma_pii*(pii(-3)+pii(-2)+pii(-1)+pii-PII)+gamma_y*(y-y(-1)-gz);
BGY*(pgb+bg)-BGY*bg(-1)+MY*(m-m(-1))=GY*(pd+g)-TY*tao-gamma_h*WHY*(w+h)+gamma_k*RKY*(rk+k)-gamma_k*delta*IKY*(pi+k);
tao-tao(-1)=v1*(bg(+1)-BGY)-v2*(bg(+1)-bg);
yd=CDY*cd+IDY*id+GY*g;
y=YDY*yd+CMY*cm+IMY*im;
nx=CMY/NXY*cm1+IMY/NXY*im1-CMY/NXY*cm-IMY/NXY*im;
nfa=e+pfb+bf(+1);
nfa=BFN*(e+bf)+PYMN*(e+pf+CMY*cm1+IMY*im1)-PYN*(pf+CMY*cm+IMY*im);
pii=pd-pd(-1);

g=rho_g*g(-1)+u_g;
gz=rho_gz*gz(-1)+u_gz;


lmd1+pc1+sigma*c1=0;
(beta-1)*(epsi-1)*pc1-(beta-1)*epsi*m1=lmd1(+1)-lmd1;
(1-H)*lmd1+(1-H)*w1=H*h1;
lmd1+pi1+(1-gamma_k)*(1-beta+beta*delta)*(lmd1(+1)+rk1(+1))-gamma_k*delta*(lmd1(+1)+pi1(+1))=0;
lmd1(-1)+pdb1=lmd1;
lmd1(-1)+pgb1=lmd1;
lmd1+e1+pfb1-lmd1(+1)-e1(+1)=0;
k1(+1)=(1-delta)*k1+delta*i1;
w1=mc1+y1-h1;
rk1=mc1+y1-k1;

pdv1/(1+sitap)-mc1+beta*kesi*((pii1+pdv1(+1))/(1+sitap)-mc1(+1))+beta^2*kesi^2*((pii1(+1)+pdv1(+2))/(1+sitap)-mc1(+2))=0;
pd1=(1-kesi)*pdv1+kesi*pd1(-1);
pf1=pd1-e1;
c1=wc^(rho/(1+rho))*CDC^(1/(1+rho))*cd1+(1-wc)^(rho/(1+rho))*CFC^(1/(1+rho))*cm1;
i1=wi^(rho/(1+rho))*IDI^(1/(1+rho))*id1+(1-wi)^(rho/(1+rho))*IFI^(1/(1+rho))*im1;
pd1=rho*c1-rho/(1+rho)*cd1+pc1;
pf=rho*c1-rho/(1+rho)*cm1+pc1;
pd1=rho*i1-rho/(1+rho)*id1+pi1;
pf=rho*i1-rho/(1+rho)*im1+pi1;

yd1=alphe*k1+(1-alphe)*gz1+(1-alphe)*h1;
yd1-cd1-id1=cm+im;
r1=gamma_i*r1(-1)+R+PII+gamma_pii*(pii1(-3)+pii1(-2)+pii1(-1)+pii1-PII)+gamma_y*(y1-y1(-1)-gz1);
BGY*(pgb1+bg1)-BGY*bg1(-1)+MY*(m1-m1(-1))=GY*(pd1+g1)-TY*tao1-gamma_h*WHY*(w1+h1)+gamma_k*RKY*(rk1+k1)-gamma_k*delta*IKY*(pi1+k1);
tao1-tao1(-1)=v1*(bg1(+1)-BGY)-v2*(bg1(+1)-bg1);
yd1=CDY*cd1+IDY*id1+GY*g1;
y1=YDY*yd1+CMY*cm1+IMY*im1;
nx1=CMY/NXY*cm+IMY/NXY*im-CMY/NXY*cm1-IMY/NXY*im1;
nfa1=e1+pfb1+bf1(+1);
nfa1=BFN*(e1+bf1)+PYMN*(e1+pf1+CMY*cm+IMY*im)-PYN*(pf1+CMY*cm1+IMY*im1);
pii1=pd1-pd1(-1);

g1=rho_g*g1(-1)+u_g1;
gz1=rho_gz*gz1(-1)+u_gz1;

e+e1=0;
nfa+nfa1=0;

end;

shocks;
var u_g; stderr 0.0461;
var u_gz; stderr 0.0472;
var u_g1; stderr 0.0461;
var u_gz1; stderr 0.0472;



end;

steady;

check;

stoch_simul(drop=200,irf=10,hp_filter=1600) y y1 c c1 h h1 e e1 nfa nfa1 nx nx1;



There comes the report of

Code: Select all

There are 27 eigenvalue(s) larger than 1 in modulus
for 27 forward-looking variable(s)
 
The rank conditions ISN'T verified!
 
??? Error using ==> print_info
Blanchard Kahn conditions are not satisfied: indeterminacy due to rank failure

Error in ==> stoch_simul at 46
    print_info(info, options_.noprint);

Error in ==> test96 at 517
info = stoch_simul(var_list_);

Error in ==> dynare at 132
evalin('base',fname) ;


Wil somebody help me to fix this?Thank u!

Your model suffers from indeterminacy.

This problem has been dealt with in many post on this forum, please search this archives.

Best,