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Hello Dynare Community

I have a two good open economy DSGE model that I am able to successfully run in a "baseline case," however, when I add a new component to the model I run into an error telling me I have 4 eigenvalues larger than 1 in a modulus for 3 forward looking variables. The rank condition isn't verified!

it also goes on to say that the Blanchard-Kahn conditions are not satisfied: no stable equilibrium.

In the new model, I add a variable for government capital, Kg, add a new equation that describes the evolution of the stock of government capital (which is your basic capital stock evolution), and add Kg as a factor of production for one of the goods (the "formal good"). I have attached the mod file.

I would appreciate it if anyone had any suggestions, and thanks in advance!

mc

This suggests that you did a timing (or another) mistake somewhere.

Thank you for your input jpfiefer. I have tried several different combinations for timing, none of which have been able to solve the issue. Do you have any suggestions of where to look for non-timing related errors?

Thanks

mc

There is only one unique timing dictated by economic theory. If government capital is also a predetermined capital stock, then it has the same timing as private capital. The error is then typically in the Euler equation.