Steady states - simple credit cycle model

[jpfeifer]

The unstable version converges to a steady state with

STEADY-STATE RESULTS:

c_p 0.49997
n_p 0.978317
d 0.409975
w_p 0.416642
t_p 0.0839528
w_i 0.407608
c_i 0.489129
n_i 1
b 0.408221
t_i 0.368116
q_h 1.74292
h 1
r_d -0.776499
r_b -0.780273
r_b_tild -0.698775
R_b -0.735536
K -0.00175421
pie 0.219009
y 0.989099
r_ib -0.735553
eps_l_p 0.833333
eps_d 0.82
eps_l_i 0.833333
eps_b 0.888221
z_e 1
elas_d -18.9639
elas_b 17.4413
elas_f -20
x 1.2133
eps_y 6
MODEL_DIAGNOSTICS: No obvious problems with this mod-file were detected.
Error using print_info (line 42)
Blanchard Kahn conditions are not satisfied: no stable equilibrium

Dynare 4.4.3 finds a different steady state where the Blanchard-Kahn conditions are satisfied, but where the IRFs look weird. Taken together, this seems to me like there is still a timing problem in the model. This would explain why the IRFs are kinked at the undesirable steady state and why the model does not solve at the desirable steady state.

As a first step, check which steady state is the correct one.

Regardin zi,

WARNING: some exogenous (zi) are declared but not used in the model. This may lead to crashes or unexpected behaviour.

When comment out all equations containing it, it cannot affect the model

[monsoon]

Thanks Johannes! I will check the steady state. I understand the commenting thing. But the issue is when I try to make zi, the monetary policy shock endogenous, I have to include two equations in the model - one taylor rule equation and the zi process leading to a mismatch between no of endogenous variables introduced and no of equations. The fact is the policy rate is determined in some other equation (deposit branches) which makes my taylor equation redundant. Is there a way to get out of this.

[jpfeifer]

If the rate is determined in a different section you have to think hard about what determines the equilibrium interest rate and assures uniqueness and determinacy in your model (the equivalent to the Taylor principle). As there is apparently no standard monetary policy in your model, that also changes the interpretation of a monetary policy shock and how to introduce it.