How to solve this unit root problem?
Posted: Mon Jan 07, 2013 9:43 pmHey guys,
I attached my simple model in pdf and it's .mod file. I have 3 restricted agents (can buy only one type of long-term bond) and a unrestricted one (can buy all 4 bonds types of the economy). My model is log-linearized and Dynare says that it has 3 unit roots.
Does anybody know why I have this problem? Is it because of the incomplete markets of my bond economy?
How can I solve it? Second-order approximation would help?
Thanks!!
I attached my simple model in pdf and it's .mod file. I have 3 restricted agents (can buy only one type of long-term bond) and a unrestricted one (can buy all 4 bonds types of the economy). My model is log-linearized and Dynare says that it has 3 unit roots.
Does anybody know why I have this problem? Is it because of the incomplete markets of my bond economy?
How can I solve it? Second-order approximation would help?
Thanks!!