Puzzle with ex2 in F. Barillas, R. Colacito, S. Kitao, C. Ma

[Peterpierre]

hi

I took the code in two country model in Barillas etc. and changed to these shocks:

shocks;
var e1; stderr .008;
var e2; stderr .008;
var e1,e2=0.0022;
end;

The code will return the error message below. But the code works if I give:

shocks;
var e1; stderr .008;
var e2; stderr .008;
//var e1,e2=0.0022;
end;

or

shocks;
var e1; stderr .08;
var e2; stderr .08;
var e1,e2=0.0022;
end;

Anybody knows what may be going on?
THANKS!



??? Error using ==> chol
Matrix must be positive definite.

Error in ==> simult at 42
chol_S = chol(M_.Sigma_e(i_exo_var,i_exo_var));

Error in ==> stoch_simul at 64
oo_.endo_simul = simult(repmat(oo_.dr.ys,1,M_.maximum_lag),oo_.dr);

Error in ==> TwocountryApprox at 132
info = stoch_simul(var_list_);

Error in ==> dynare at 81
evalin('base',fname) ;

[Jian Li]

I think you can solve the problem if you try the form

var e,u=phi*stderr(e)*stderr(u);

phi is the conditional correlation of e and u