Dynare forums

Hi all

I am working on a 3-period OLG model with human capital, general government spending,government spending on education and pensions. Human capital and physical capital are state variables. The tax instruments are consumption taxes, labor taxes and capital taxes. When I use capital or consumption taxes as residually determined policy instruments (like endogenous variables) there is no problem with my steady-state solution. However, when I use labor tax as endogenous variable, while I can get sensible steady-state results, I get the following message (after including check; command in the code):

There are 7 eigenvalue(s) larger than 1 in modulus
for 6 forward-looking variable(s)

The rank condition ISN'T verified!

I can't figure out where this comes from. Is it a unit root problem or determinacy? Is it a timing problem? I post two mod files that illustrate this.
Best
Stelios
Athens University of Economics and Business

This is a typical timing problem. Recheck the timing of your predetermined variables one by one to resolve the problem.