Help me with the problem of rank condition

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Help me with the problem of rank condition

Postby pangasan » Tue Sep 15, 2009 12:43 pm

Help!
I'm new here and I begin to learn dynare lately
I conducted a very simple model, but matlab told me that the rank condition isn't verifiled
I'm very confused about this "rank condition", as I don't know much about it.
Thanks very much!
var c y rho w k i r a l m g q ;
varexo omega mu;
parameters mc my mrho mg mi mm mr ml delta beta tau alpha epsilon eta;
mc=7006.446734;
my=16329.37162;
mrho=0.2740;
mg=2107.772394;
mi=6735.910389;
mm=1919.7664;
mr=0.04094875;
ml=0.986706973;
delta=0.023;
beta=0.04094875;
tau=-0.5;
alpha=0.6;
epsilon=0.95;
eta=0.95;
model;
c(1)=c+(mrho/(mrho+1))*(rho(-1)-rho)+(mr/(1+mr-delta))*r(1);
w=c+(mrho/(mrho+1))*rho(-1)+(ml/(1-ml))*l;
m=rho(-1)+c;
g(1)=(1/(1+beta))*g+(mc/mg)*((1/(1+beta))*c-c(1))+(mi/mg)*((1/(1+beta))*i-i(1))+(mm/mg)*((1/(1+beta))*m-m(1));
y=(mc/my)*c+(mi/my)*i+(mg/my)*g+(mm/my)*m;
rho=tau*g+(-1-tau)*q;
y=a+alpha*k(-1)+(1-alpha)*l;
i=(1/delta)*k-((1-delta)/delta)*k(-1);
w=y-l;
r=y-k;
a=epsilon*a(-1)+mu;
q=eta*a(-1)+omega;
end;
steady;
check;
simul(periods=2100);
pangasan
 
Posts: 1
Joined: Tue Sep 15, 2009 12:35 pm

Re: Help me with the problem of rank condition

Postby SébastienVillemot » Mon Sep 21, 2009 8:51 am

Hi,

This refers to the Blanchard and Kahn conditions which establish the local conditions for existence and uniqueness of a stable rational expectations solution.

Their 1980 paper in Econometrica, "The Solution of Linear Difference Models under Rational Expectations", explicits the order and rank condition for a linear model.

You can read this for a generalization to non-linear models and some examples:
http://ideas.repec.org/p/sce/scecf0/225.html

Something in your model is misspecified. You may need to change the value of some parameters to get a unique stable solution.

Best,
Sébastien Villemot
Economist at OFCE – Sciences Po
SébastienVillemot
 
Posts: 706
Joined: Fri Dec 07, 2007 2:29 pm
Location: Paris, France


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