Two-country model with portfolio adjustment costs

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Two-country model with portfolio adjustment costs

Postby hado » Tue Apr 28, 2015 11:40 am

Hello,

We try to replicate the model in Benigno, 2009. "Price Stability with imperfect financial integration". This is a two-country model with two bonds and quadratic portfolio adjustment costs. We get the following error messages:

"There are 14 eigenvalue(s) larger than 1 in modulus
for 13 forward-looking variable(s)

The rank condition ISN'T verified!"

and

"Error using print_info (line 42)
Blanchard Kahn conditions are not satisfied: no stable equilibrium"



The model_diagnostic command does not give us a collinearity error message.
We're also quite sure that timing is not the issue.
While the parameterization for the most part follows Benigno (2009), playing around with the monetary policy parameters can give us 13 eigenvalues larger than 1 for the 13 forward-looking variables, but the rank condition is still not verified.
We would be very happy if someone could hint us in the right direction here.
Attachments
replication_benigno_st_steadystate.m
Steady-state file
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replication_benigno_st.mod
mod-file
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hado
 
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Re: Two-country model with portfolio adjustment costs

Postby hado » Tue Apr 28, 2015 9:53 pm

To answer the above question myself, in case it is of interest to anyone else: Replace 1=(1-alph)*P_H_P^(1-eps)+alph*(P_F_star_P_star)^(1-eps); by the second bond market clearing condition: -(1-n)*b_F_star+n*b_F=0;
hado
 
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Joined: Tue Apr 28, 2015 10:39 am

Re: Two-country model with portfolio adjustment costs

Postby sfking » Fri Apr 29, 2016 3:08 pm

Hi hado,

I am also trying to replicate the results in this paper, but could you tell me how the equation (19) is derived? Thank you.
sfking
 
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