On forward looking variables

[HouseC]

Hi,
I'm a bit confused on the definition of "forward looking variables" because when running my model, dynare just report

"There are 10 eigenvalue(s) larger than 1 in modulus
for 9 forward-looking variable(s)
Blanchard Kahn conditions are not satisfied: no stable equilibrium
"
To solve the problem, I need to figure out what is the forward looking variables defined by dynare.
According to message in viewtopic.php?f=1&t=13
Then I understand "a forward-looking variable is a variable that appears in the model with a lead"
Yet, if I follow this definition, I find that my model have 12 forward looking variables. So I guess I misunderstand the definition. Is there anyone can help?
Besides,I have ever looked at GarciaCiccoetal2010.mod written by Johannes Pfeifer. In that mod.file, k(+1),k(+2),g(+1),d(+1),h(+1) are five forward looking variables and the model has exactly 5 eigenvalue(s) larger than 1 in modulus.

Thanks in advance.

[jpfeifer]

This is tricky. In general, you are right. In more complex models, some variables are substituted out (e.g. lags and leads of order>1). Moreover, when you use the predetermined_variables command, some states can look as if they are forward-looking, but they are not, because e.g. k_t+1 is predetermined.

[HouseC]

This is tricky. In general, you are right. In more complex models, some variables are substituted out (e.g. lags and leads of order>1). Moreover, when you use the predetermined_variables command, some states can look as if they are forward-looking, but they are not, because e.g. k_t+1 is predetermined.

Thanks for prompt reply!

[HouseC]

Hi, I try to solve this problem by simplifying the model. Yet, it really confuse me when the following error is report by dynare:
There are 6 eigenvalue(s) larger than 1 in modulus for 6 forward-looking variable(s)
The rank condition ISN'T verified!
Error using print_info (line 48)
Blanchard Kahn conditions are not satisfied: indeterminacy due to
rank failure
I will rather believe that 6 eigenvalue(s) larger than 1 in modulus for 6 forward-looking variable(s) means that Blanchard Kahn conditions are satisfied. Anyone here can help to explain what's going on? If necessary, I can post my codes.
Thanks

[jpfeifer]

This is not about Blanchard Kahn, but about the rank condition. Try running model_diagnostics.

[HouseC]

This is not about Blanchard Kahn, but about the rank condition. Try running model_diagnostics.

Thanks for kindly suggestion. Problem solved.

[RMB]

Hi, everyone,

I am having a problem related to forward-looking variables and eigenvalues. After I started the .mod file, I got a message:
"There are 13 eigenvalue(s) larger than 1 in modulus
for 14 forward-looking variable(s)

The rank condition ISN'T verified!"

By reading comments here and other parts of this forum, I understand that I have a problem with leads and lags. But, something that has to be add:
- I am using an alternative .m file to calculate my steady state;
- All my .mod script is a linear model;
- When I comment the command "steady;" the problem is gone and I have all the results. I noticed that my impulse-response are not convergent, but I do not know if it is a problem related to the periods.

I did not post my mod file because I do not have in this moment, but someone has a guide to solve this problem and learn about the question?
Thanks in advance

[jpfeifer]

1. Are you using the unstable version? 4.4.3 may accept wrong value as the steady state.
2. What you describe sounds like a matter of parameterization. For the steady state provided, the model does not satisfy the BK conditions.

[RMB]

Jpfeifer,

I am using 4.4.3 version. Have I to use another version?

When you say: "matter of parameterization", you are saying that the parameters that I chose are not getting SS, right?

Thanks!

[jpfeifer]

Please try the unstable version.
Without having seen the mod-file, it is impossible to tell where the problem might be

[RMB]

Just a moment

[RMB]

Hi jpfeifer,

My .mod and steady state are now available to you. I returned to the basic model in order to correct some mistakes that I did. The basic model is not the original, but with just one difference.
I am a little confused about these points:
- the IRF are weird;
- the calculated SS is ok, but the results presented in console sound weird, because some of the variables are negative.

What do you think about? Is it corrected? Could I keeping going and add other variables and equations that I would like to?

[jpfeifer]

There must be something still wrong. Your model is linear, thus the steady state of the variables should be 0 as they are percentage deviations from steady state. That is not the case, because there is a constant in Equation 7. Putting

Code: Select all

resid

before steady yields

Equation number 7 : 0.016329

[RMB]

Yes, you are correct! I find a mistake

Code: Select all

(1-nu)*R_fss*Rss*(R_f + R) + nu*R_fdss*Rss*(R_fd + R) = ((fi-1)/fi)*alpha*((P_1ss*Y_1ss)/K_1ss)*(P_1 + Y_1 - K_1(-1)); // Produtividade mrginal do capital 1


instead of

Code: Select all

(1-nu)*R_fss*Rss*(R_f + R) + nu*R_fdss*Rss*(R_fdss + R) = ((fi-1)/fi)*alpha*((P_1ss*Y_1ss)/K_1ss)*(P_1 + Y_1 - K_1(-1)); // Produtividade mrginal do capital 1


However, when I corrected it, I do not have rank condition satisfied

The rank condition ISN'T verified!
Error using print_info (line 48)
Blanchard Kahn conditions are not satisfied: indeterminacy due to rank failure

Error in stoch_simul (line 98)
print_info(info, options_.noprint, options_);

Error in BNDES_v12 (line 318)
info = stoch_simul(var_list_);

Error in dynare (line 180)
evalin('base',fname) ;

I checked the steady_state file and it is correct.
Do you have another suggestion?

Thanks again!

PS: I attached the new .mod corrected.

[jpfeifer]

Check all model equations again, particularly the timing. There may be more mistakes left.