Hi,
I am trying to run a simple Non-linear New-Keynesian model, but it doesn't satisfy to BK conditions. However it does and displays IRFs correctly when I remove the budget constraint. Can anyone help with this problem?
jpfeifer wrote:The Euler equation only makes the household indifferent between consuming and investing into bonds. That is in every model. But there must be some market clearing assumption or endogenous mechanism that determines pins down the quantity of bonds. Do a thought experiment: if bonds are above steady state what makes them go back?
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