Dynare forums

Dear all,

i want to compare two models, one with quadratic capital adjustment costs and one without. For the latter i set the parameter for the costs (tau_K) zero.
But doings this yields the following error message, that the rank condition isn't verified.

There are 7 eigenvalue(s) larger than 1 in modulus
for 8 forward-looking variable(s)

The rank conditions ISN'T verified!

??? Error using ==> print_info
Blanchard Kahn conditions are not satisfied: indeterminacy

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

Error in ==> NKM at 210
info = stoch_simul(var_list_);

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

i checked the model several times, but can't find any error. It would be great, if you could help me. Thank you

For some parametrizations of real and nominal frictions, capital adjustment costs can be necessary to achieve determinacy: see e.g.
http://www.econ.jhu.edu/pdf/papers/WP490_lubik.pdf
Hence, your model may be completely correct.

Thank you very much! I found that the rank condition is fulfilled, if i write in case of tau_K=0 for k and k(+1) K(-1) and k. But that doesn't work, if tau_K is unequal zero and so i'm working there with k and k(+1). Can i compare this two models now?

Sorry, but you cannot simply change the timing of the predetermined capital stock. Apparently you are unsure about the correct timing. I guess the timing is the reason the BK conditions are not satisfied. The line

Code: Select all

STEADY_STATE(y)*y=STEADY_STATE(c)*c +STEADY_STATE(k)*k(+1)-(1-delta)*STEADY_STATE(k)*k;

looks as if you ignore the Dynare "stock at the end of a period" timing convention for predetermined states. Please consult page 10 of the manual. If you fix this problem, you will most probably be analyze the question you have at hand.

Thank you very much for your help. I think i understood the timing convention now, unfortunately there is still no solution for my comparision of the two models.