Blanchard-Kahn conditions and explosive dynamics
Posted: Sun Jun 26, 2016 9:57 am
Hi,
as far as I understand, Blanchard-Kahn conditions are conditions ensuring that there is local determinacy, meaning that there is only one transitional equilibrium path. I read that Blanchard-Kahn conditions can only be used when the series do not explode, that this is a requirement.
Therefore, how does Dynare exclude the case in which series explode before checking for the Blanchard-Kahn conditions ? Is this simply by adding a transversality condition ? How is this coded in Matlab files ?
In addition, I met a case in which Blanchard-Kahn conditions are satisfied, the model runs well in Dynare, but when I simulate the time path of my variables (not IRF but time paths when there are random shocks in each period), there are explosive (but the IRFs are not).
So should I deduce that Blanchard Kahn conditions only ensure that endogenous variables go back to their steady state values after one shock but not that time paths with shocks in each period are not explosive ? I understand that these are distinct concepts, because time paths with shocks in each period will not converge to steady state in any case, by definition, but they can either be stable or explosive though.
Thanks a lot for any clarification
as far as I understand, Blanchard-Kahn conditions are conditions ensuring that there is local determinacy, meaning that there is only one transitional equilibrium path. I read that Blanchard-Kahn conditions can only be used when the series do not explode, that this is a requirement.
Therefore, how does Dynare exclude the case in which series explode before checking for the Blanchard-Kahn conditions ? Is this simply by adding a transversality condition ? How is this coded in Matlab files ?
In addition, I met a case in which Blanchard-Kahn conditions are satisfied, the model runs well in Dynare, but when I simulate the time path of my variables (not IRF but time paths when there are random shocks in each period), there are explosive (but the IRFs are not).
So should I deduce that Blanchard Kahn conditions only ensure that endogenous variables go back to their steady state values after one shock but not that time paths with shocks in each period are not explosive ? I understand that these are distinct concepts, because time paths with shocks in each period will not converge to steady state in any case, by definition, but they can either be stable or explosive though.
Thanks a lot for any clarification