Blanchard Kahn condition in NKM

[Hoyd]

Dear Prof. Juillard,

I got stuck with the problem of not satisfying the rank condition for quite a while, it is Chari Kehoe and McGrattan 2000 NK model, is the parameterization the main problem, or the way to write the model? Desperate for help! mod file attached...

[MichelJuillard]

I get the following error

Code: Select all

??? Subscript indices must either be real positive integers or logicals.

Error in ==> dr1 at 205
b = jacobia_(:,k0);


This indicates that one variable isn't present in the model at the current period. In your case it is the 'm' variable.

Glancing at the paper, I don't understand why you have both mbar and m in the model.

Best

Michel

[Hoyd]

Many thanks for your point! m is the real money normalized by the sticky price and mbar is the one normalized by aggregate flex price. According to the paper sticky price is set before the period "t" starts (i.e. period "t-1") however the consumers make decision in period "t" when the shock is realized, therefore sticky price and henceforth m is always a state variable...I didnt know it was a problem..

I have brought all the m variables one period forward so the rigidity is still the same but set in period t, it works now!

Very grateful indeed!!